What to Do When Markets Take a Deep Dive
The sky is falling…. The sky is falling…
Quick everyone, sell everything. Sell first, ask questions later.
That sounds about right.
In early 2020, that’s the panic that gripped the Street. The Dow Jones fell over 10,000 points, and the other indices followed suit.
All as Covid-19 fears dominated the news globally, and volatility reared its ugly head over the worst months since 1929.
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Technically, things don’t look so hot either.
The Dow broke through the 200-day Moving Average, and continues to plummet. It could re-test recent lows at 18,000, and could possibly drop even further, possibly to 16,000.
So, here are a few pointers:
But Don’t Panic
Pullbacks are healthy. And we have to remember markets do not just go up in straight lines.
The pullback -- particularly for tech stocks – was needed, argued Joe Heider, president of Cirrus Wealth Management, as noted by CNN. "The selloff is healthy. Since the market bottomed in March 2009, it's been more than 10 years of growth stocks leading the way non-stop."
But as long as the economy is growing, it’s nothing to be concerned about at all. In fact, it may be another buying opportunity on resiliency.
Above all else, never panic.
Have Cash on Hand
“Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent,” says Warren Buffett.
Don’t Follow the Herd
One of the key reasons that many investors underperform in the market is because they move in and out of assets at the wrong time. When an investor sees everyone else making money from rising markets, that's when they tend to throw every spare dollar into their investments. Unfortunately, when that same investor sees a group of other investors selling, the investor sells, too.
In short, they get caught up in herd mentality.
A trader will often mimic the actions of a larger group so they don't feel left out of a trend, or miss what the herd believes is a “can’t lose” trade.
The rationale is simple.
It’s unlikely that such a large group of people can be so wrong.
Be in a Strong Position to Capitalize
With cash on hand, Buffett has the financial flexibility to jump on opportunities that popped up. As the billionaire often points out, keeping some cash on hand allows you to take advantage of corrections without having to sell other investments.
Remember that markets are resilient.
Don’t let a pullback chase you from the market. Remember, they’re resilience. Stay put.
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