How to Handle Stock Market Crashes?

By - IndianMoney.com Research Team     01 September 2015

The Buzz words today are China and Stock Market Crash. Just a week ago, the Bse Sensex had crashed by over 1500 points. Concerns over China had led to this crash.

The Result…Emotions which you never showed for years “Fear” and “Panic” were written all over your face.

There is just no place to hide….The only advice from your friends….Sell Sell Sell…and your thoughts …Why did I invest in the stock market? Didn’t I have better things to do?

Never Press the Panic Button

There is no better time to bring up a famous saying by one of the greatest investors of all time Warren Buffett.

“Be fearful when others are greedy. Be greedy when others are fearful."

Stock markets are all about ups and downs. What goes up has to come down. What comes down has to go up. Why panic at this natural process?

Yes…You have bought stocks to be sold one day, but that day is not today. There are better days to sell.

If you have stocks in your portfolio with good fundamentals, this is the time for another saying “The best time to buy is whenever you have money; and the best time to sell is never.”

So why panic…Just wait for the stock market to rise again and sell only if you have to.

Don’t Be Too Greedy

This is the exact opposite of Panic …Greed…

When the stock market falls, most of the stocks also fall with it. However some stocks might fall to real low levels. You are tempted to buy these stocks as they are ridiculously cheap.

Just because a stock is cheap doesn’t mean it is a good buy. A stock also needs to have good fundamentals.

Generally stocks of Companies which have a large amount of debt, a bad management, or regulatory issues, fall a great deal more than stocks of reputed well run Companies, in a stock market crash. You need to identify these rotten apples and not make a purchase, even though their prices are low.

A stock with good fundamentals available at a cheap price is definitely a good buy. You need to identify these stocks and make a purchase.

There are times when stock markets crash, as investors are panic stricken. All they want to do is sell.

These are times which you must wait for. When investors panic they blindly sell stocks. In times like these, good stocks and bad stocks all fall down.

You must look for bargains…buy stocks with good fundamentals at a cheap price.

Be an Investor Not a Trader

A trader buys and sells stocks each day. Daily rise and fall in the prices of stocks affect him. He could suffer a huge loss when markets crash.

He definitely needs to be worried and frightened. You don’t …

You are a long term investor. Not a trader. You can wait for better times as stock markets will go up, at some point in the future.

When you buy stocks, stay invested for at least 3 years to make profits. In 3 years stock markets would have seen several ups and downs. Stock markets will rise at some point of time in 3 years. You need to give yourself time to make money in the stock markets. Time for another saying “Do not try to time the market. Spend time in the market”.

You need to buy stocks of reputed Companies with good fundamentals, when staying invested for the long term, in the stock markets. If you buy bad stocks they will never go up.

Under : Financial Planning