2020 is a tough year, over the past weeks, they are growing cases of COVID-19 worldwide outside China, and then stock markets in turmoil as oil price crashes. Many had been thinking:
“Should I sell?”
“Will it rebounds?”
“What if it goes down more?”
In the end, one’s indecision leads to inaction. Here’s something in the history which would help you during this period of time.
Stay Vigilant and Exercise Cautious
There is just so much one need to learn about the stock market. Although the stock market has been in existence for quite a while now, yet a lot of people do not understand how stock markets work, how to watch it, or even what it shows. The economy is declining slowly, and everyone is looking toward the stock markets.
According to history, 1929 was the year of the stock market crash. Between that year and 1932, the values of the stocks dropped by eighty percent. There is nothing more devastating to economies than the crashing of the market, which could leave every stock in your portfolio very worthless. Diversification of your stocks will not even help you because stock market crashes affect every sector and drag them down, thus affecting the economy in its entirety. The Great Depression came about as a result of the contribution of the stock market crash of October 29, 1929, the phenomenal Black Tuesday. At the time, many people got hurt as a result of the economy sparked off by the crash of the stock market back then. It was the worst day that was experienced in the entire history of the United States Stock Exchange as a record of about 16.4 million shares were traded that same day. Investors lost more than $100 million within 30 days.
Investors began hoping against hope and encouraged themselves by believing that the conditions of the market will improve. But ensuing developments crushed any hopes of improvements in the stock markets, which devastated investors a good deal and made them begin to sell off their shares frantically and blindly. For several weeks, the stock market continued to confuse people, and it became glaring that the once flourishing American economy was a mess. This unfortunate condition of the economy led to poverty, unemployment, homelessness, a sharp rise in crime as well as in the number of school dropouts, and lots of other social problems.
But before dwelling on the crash of the stock market and its attendant difficulties, maybe we ought to find out what a stock is and why there is so much noise about it, especially in financial news. To begin with, stocks refer to shares in an organization or company. The stock market, therefore, is the collection of shares or assets from these businesses which are listed on the stock exchange. It is not everyone that likes to invest in stocks, though experts always advise that it is essential. If you are the type of person that likes to see your money, then maybe investing in stocks is not your thing. However, if your goal is to create a viable stream that will enable you to earn passive income for life by making your money work for you, then investing in stocks is one of the best ways to achieve this. Therefore, to follow this route, you must become very savvy about the stock market.
Most times, when you hear the words ‘stock market,’ the first thing that usually crosses one’s mind is the New York Stock Exchange and the seeming chaos that must be happening there. Nevertheless, the bedlam is the animated consummation of the stocks being bought or sold from every part of the country.
A study of stock market crashes has shown some common traits they share. Here are some of them:
- Market crashes don’t usually give any prior warning before they take place. They happen without any notice and come to an end just as suddenly. Market crashes could have been prevented if it were possible to predict these events with a high degree of accuracy.
- Market actions are depicted by trend moves, which are usually interspersed by a retracement of trends. This is the phenomenon on which the Elliot Wave theory is based on. Nevertheless, during a market crash, price action generally points to one direction only, and that is downwards with little to no upward retracement. This particular feature is responsible for the untold damage that occurs on one’s wallet in the event of a market crash.
- Another distinguishing feature commonly noticed during market crashes is the sharpness of the chart. Not only crash very dangerous, but they are also exacerbated by a substantial imbalance between sellers and buyers, with everybody gunning for the exit strategy at the same time.
- Market crashes are far-reaching events. No wonder it takes a little while before everything normalizes. Virtually 99.9 percent of stocks are bleeding red when collisions occur. Survivors are very few. That is if any subsist at all. The reason for this is that a majority of these stocks are already tarnished, and even the few good ones don’t get spared.
But let us face the real scenario: what if the market crashed again? Stock market crashes, though sudden, starts when a few investors begin to panic about the state of the market and start selling off their shares. This is what usually spirals outward and out of control as other investors start to panic and dump their shares as well. Before long, prices plummet fast, and this further prompts more investors into selling off more of their stocks.
But to be a success at investing, you must learn to ignore the financial news. This is because the economic news incites terrible behavior, which drives people to start pouring money into stocks, especially during bull markets, when the stocks have risen for a short time. Speculators, not wanting to miss out, begin to pile it on. As soon as the stock market shows any sign of dropping, investors panic and start to sell off their stocks in anticipation of falling prices.
The saddest part of all this is that most often, such mistakes are prevalent among small investors, and this is a wrong move. Warren Buffet, the renowned billionaire and world’s most significant investor, offers this advice: ‘Be fearful when others are greedy, and be greedy when others are fearful.’ This, of course, is not a piece of straightforward advice to follow as it goes against your gut feelings. No one will want to start purchasing stocks when prices have fallen; it doesn’t make any sense to buy more during such periods when the stock market is experiencing a dip. The truth is, nobody knows whether the stock market is near its bottom or at its peak, and the only way out is to make regular investments whether the market is low or high.
There is no news like bad news, and since the media houses’ business is to sell a story, one can expect that they will go out of their way to sensationalize it. Overeager reporting, as well as senseless exuberance, can lead to great gloom and lead investors into making poor decisions or choices.
It’s best to stay vigilant and calm! And also stay safe and healthy!
Jeremy