The stock market is risky they say. People get happy when the markets rise substantially. But that’s when we should be cautious. Because after every climb there is bound to be a fall. The higher the climb the sharper the fall. That’s the fact of life and the same applies to markets too. So what do we do when the stock market crash.
An attempt to understand the market
First, let’s understand why the stock market crash. Markets are led by human’s emotions mostly. So when the price of a stock goes up high the people who own the stock decide to sell it off. They plan to sell to book some profits. Then looking at the volume of sales of that stock the others too start selling. This effect snowballs bringing down the price of that particular stock. Many panic and exit the stock fearing to take loses.
This kind of gain and fall cannot be avoided in the stock market. One has to be scared if they do not know about the business model of that company. The lack of knowledge scares the investor to think the company is going to go bankrupt. Hence the stock prices are also falling.
Understand the business of the company whose share you own.
Let’s assume that I know the company and its business model. I have also analysed its financial situation and balance sheet. Everything looks healthy and I can understand that the company can recover through a hard time. Then will I be scared if the stock prices of the company reduce? I don’t think I’ll be. Because I am sure about the capabilities of the company. So I would let my money stay in the company letting it grow.
Unless the stock price has increased twice as much as the invested amount there is no need to be worried. In the earlier case, I would sell 50% of the total shares to book the profits. Only because I want to invest again when the prices come down. If I have no need for the money and if I am confident about the company I would let the money stay. It is important to track the company and be on top of the news.
Stay invested at all times
So in short if the stock market crash and if I have some liquid cash at hand I will purchase more shares. Two things to look out for. The first is to buy shares when the markets are down. The second is to avoid buy overpriced shares even if its a good company. Because overpriced shares will fall in value one day and will take a longer time to recover. I think if I keep doing these both my investments will be safe. Hope this has helped your question.