If you’ve turned on the news or have gone on social media at least once this week, you’ve probably seen the headlines talking about the crashing stock market. From its highest point to its lowest point, the S&P500 was down upwards of 16% this week alone. Why is this such a big deal?
The stock market normally returns investors between 8%-12% per year. In one week, the stock market erased upwards of 2 years’ worth of gains for the average investor. As such, as the stock market began to fall due to news of the coronavirus and its spread across the world, investors began panicking and selling out of their positions.
For any investor with half of a brain, this is the best thing that could be happening right now.
Yes, I said it. A crashing stock market is the best thing that can happen to any logical investor; it allows us to buy into the market at much lower prices than we are going to see in the future, essentially expediting our gains.
So, whether you’ve never made an investment before, or you’re just new to the game and want to know how to take advantage of a crashing stock market, this is the perfect guide for you.
Pro Tip: If you want to learn more about investing, consider checking out my 12 Investing Lessons e-book, filled with lessons I wished I had learned at a younger age. This is a great time to have the knowledge and advice in that reading.
BUY BUY BUY
Maybe you haven’t seen my posts or the captions on GoodStrongMen’s Instagram account, but if you have, you know exactly what I’ve been preaching and my thoughts on the coronavirus. If this were an actual issue that I felt would affect or have reason to affect the price of the stock market long-term, this would all be a different story.
But the fact of the matter is that we have just witnessed the same percentage drop that occurred during the 2008 recession over a disease that has a mortality rate of under 2%. Is the disease an issue? Absolutely. Is this news worthy of a 16% drop in a week regarding the stock market? Fuck no.
The biggest concern about the virus and why it’s affecting the stock market so heavily is because of the effect it will have on global supply chains. Essentially, companies are going to struggle to manufacture product and have it shipped around the world because of worries of the disease being spread through these shipping methods.
The flaw I see here is that when medication becomes available, or the inevitable spread of the disease becomes widely accepted, is that it will no longer be a heavy concern. The disease is going to spread and while governments can limit it slightly, there’s just not a whole lot that can be done to stop it. Because of this, I don’t think it’ll play a long-term effect on manufacturing.
DON’T CONFUSE THIS WITH BUYING THE WRONG STOCKS
When I’m saying to buy right now, I’m not saying to buy these stocks that are releasing coronavirus news. A lot of stocks are releasing news saying that they’re working on a cure or medication for the coronavirus. Many of these stocks are pharmaceutical companies and will simply release news revolving around the coronavirus and instantly make massive moves.
As a day-trader, I personally understand exactly what these companies are doing. The same thing happened during the time bitcoin ran, and while they sound promising and easily influence investors because of these massive moves and “great news” the truth is that most of them are just using this to raise money. By releasing this news, they can increase the price of their stock and raise funds through something known as offerings. These offerings dilute the shares of the stock, essentially making the stock worth less over time.
If you want to trade them on a short-term basis, do so cautiously. Just as fast as they rise, they will all most likely fall.
DO Buy the Right Stocks
When I say to buy stocks, I mean the real long-term plays that you want to invest in for years to come. Companies like Apple, Amazon, Facebook, etc., are all tanking right now for such little reason. Especially true for companies who have little to do with the coronavirus, like Microsoft, these are great plays in my opinion. Think of it – Microsoft sells a service. While they sell their service to computer manufacturers who build their products in China, it is not a major factor in my opinion.
Apple, on the other hand, has a little more direct relationship with China and the coronavirus because their product is directly manufactured in China. As such, manufacturing issues have been expressed which has scared investors. Even still, regardless of what people want to think, this is not going to be the downfall of Apple in the long run. To me, this makes it a great buying opportunity as it continues to fall.
Don’t Be Scared
To most new investors, watching prices fall is the scariest time to buy into a stock. “What if it goes lower?”
Who cares if it goes lower? These stocks that you should be looking at are companies who have great long-term potential, they will go back up. The worst thing you can do is question yourself because the stock is going down. Even if the stock goes against you more after you buy, don’t worry.
In the future, these great companies will rebound and be back at their highs. How long will this take? I’m not sure, it might be a few months, it might be a year, it might be two. But if you are really looking to get into investing for long-term wealth and gains, then the last thing you want to do is be scared.
The way I like to think of it is this – the reason most of these stocks are going down as well as the overall market is because investors are selling at large. Unless this disease means that investors are never going to invest again (which it doesn’t), then as soon as the buying resumes, the market will bounce. The lower the price of the stock market, the more likely the buying is to start again. With the market down so low so fast, there will be a rebound.
Don’t “Wait” for the Bottom
This almost goes hand-in-hand with not being scared, because in my opinion, people wait for the bottom because they’re too scared to buy on the way down. The issue is that we never know when the bottom is going to be. Waiting for it will only lead you to not get in the stock at all.
Analysts will try and tell you when they think the bottom will be, or this or that. But the fact of the matter is that they know as much as you and I do when it comes to all of this – that the market is going down. Any investor knows it is going to bounce back up at some point.
So, buying it while it is going down allows you to be in the position already so that when the stock market begins to rise again, you’re making gains.
Make Sure Not to Buy All at Once
Have you read my article 3 Best Stock Market Investment Strategies for Beginners? If you have, then you may remember the term “Dollar Cost Averaging.” If you have not read it or do not remember this term, go check it out again, because that’s essentially the best way to go about actually investing.
What I mean by not buying all at once is to incrementally buy shares of the stock(s) you’re looking to invest in long-term. Suppose you have $1,000 you want to put in the stock market and are considering investing during this time while prices are low. DO NOT put all $1,000 into it immediately.
That also doesn’t mean wait till they go lower to make your first investment. At that point, you’re essentially trying to wait for the bottom, which is also not a smart move as mentioned above.
A lot of you guys have been messaging me on Instagram asking whether you should wait for the price to drop lower before you buy. The answer to that is yes and no.
Using Dollar Cost Averaging, you’re buying it immediately, but are leaving money for yourself in case it does go lower. Maybe it goes higher instead too – in that case, congrats, your first few buys were near the bottom and you can continue to buy more shares as it goes up.
My recommendation would be to pick a designated amount of money every day or week, especially during this large drop, that you feel comfortable investing.
If you don’t have a lot of money and the shares of the stocks you want to buy are expensive, check out Robinhood’s fractional share buying. This apparently allows you to buy parts of shares as opposed to the whole share, which would cost you less money.
If You Are Already In a Stock – Don’t Sell
Perhaps you’re still new to investing, but you already have some shares. Maybe you bought these a while back, or maybe you bought them the day before the market crashed. I don’t care what the case is – unless you picked shitty stocks that really don’t have a future potential, don’t sell them.
This is the worst time to sell stocks, especially real companies with future potential. If you can, this is the perfect time to buy more shares. If you don’t have enough money right now to buy more shares, just hold. These stocks are going to bounce back at some point, so selling them right now for a loss is not going to do you any good. In fact, what is likely to happen if you do sell is that you’re going to sell at the very bottom and end up buying them back for a higher price later anyways.
Again, if you have more money, use this as the time to buy more shares for when they do bounce back. If not, though, don’t fret.
At the End of the Day Just Remember…
Investing isn’t really rocket science, guys. I am excited to start teaching all of you about how to find smaller companies with long-term potential, which is a bit harder to do. However, when you’re first beginning, sticking with larger companies with steady growth is your best bet.
And that is exactly why this is an amazing time to be a beginner investor. Think of these stocks as “discounted prices” during the crash. You’re essentially able to buy shares of stock at prices from two years ago, with a very high chance of having them valued much higher in a few months. It’s a long-term game when it comes to investing, but this is a great time to start buying shares of companies with real potential at a much lower price.
Just make sure you’re doing your due diligence if you decide to invest in some risker stocks. I do not recommend the biotech stocks or pharmaceutical companies who are putting out news about the coronavirus. While they look appealing now, just wait for about 2-3 weeks and see if they still look so great.
And like I said, don’t sell out of positions you’re in now, you’ll only kick yourself later. Instead of getting sad, scared, or frustrated that you’re down on your initial investment, look at this as an opportunity to buy more shares. It will exponentially increase your long-term wealth in a short (relatively speaking) manner of time. And at the end of the day, that’s what makes this stock market crash so appealing to beginner investors.
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