In the late 1990’s we used to go to a club called “Mad Wallstreet” in central Switzerland. It was the club everyone loved to go to, and it had a really cool feature: Prices for drinks used to be shown like stock market tickers. They fluctuated in line with demand, the general mood on the dance floor and it played with our emotions. We learned how to take advantage of a market crash!
The more people ordered drinks, the higher the prices would go. If at one point demand started to fade away, the guys behind the counter would initiate a stock market crash. Whenever that happened, all the drinks from simple beers to cocktails and shots would suddenly be incredibly cheap and the crowd would cheer!
We were usually in the best mood when prices crashed as it meant a round of new drinks for everyone! We loved the excitement of that place but hated when prices were at all-time highs.
Never let a Good Crisis go to Waste
Recently, while reminiscing about these memories I asked myself:
Why are we not the same when the stock market crashes?
Instead of panic selling, we should be panic buying!
If the stock market dips, it should be like a discount offer in the supermarket. If there’s even an actual stock market crash, we should look at it like a “Black Friday Sale”.
Stock market crashes don’t happen every year, there are just a few opportunities like this in your life.
Never let a good crisis go to waste. Click To Tweet
A crisis offers the opportunity to do things you couldn’t do before.
How come so few of us like to buy and invest on such occasions?
It’s a question of how you are prepared. Your mindset, who you surround yourself with, and whether or not you have a plan define your actions.
How to Prepare for a Crash?
The very best thing to do is to always be prepared for one.
You don’t want to be in a situation where you might be forced to sell your assets at panic prices.
You do want to be prepared to take advantage of such a situation!
To be prepared, have a plan!
Keep some cash on hand, have a buying list or a rebalancing plan for your portfolio ready in the drawer. When the dip or crash happens, follow through with your plan. Buy more stocks with your cash or rebalance your portfolio towards more risk.
Warren Buffett always keeps a potential buying list in his drawer. He starts by identifying what value he sees in certain companies and then decides at which price he would be interested to buy.
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”
Warren Buffett
If you are prepared for a stock market crash, you will appreciate them coming.
Keep a cool head, don’t let negative emotions take over!
Be ready to [execute and] take advantage of a market crash.
This is how you should react instead of blindly following the herd through cycles of fear and greed. The usual panic selling will only lead to a permanent loss while buying the dip will usually lead to profitable investments over time.
Be like the crowd at Mad Wallstreet and enjoy the excitement while benefiting from discounted prices!
Human Emotions
Managing your emotions is by far the most underestimated key to succeed in becoming a better investor.
Our reptilian brain is hardwired to run towards the exit in stock market crashes. It’s a natural response but one we need to overcome if we want to succeed.
If you are well prepared for stock market crashes, then you can use that initial panic [of the others] as an opportunity!
Here are my three most effective tips:
- Be aware of how fear and greed work.
- Lead yourself, be responsible and take ownership of your emotions, Marshmallow test yourself.
- Avoid herd mentality and the panic selling or greed buying (FOMO) that comes with it. I know it’s tempting to follow the crowd, but do have the courage to be different.
It’s paramount to know yourself, to know what you are capable of, and to stay in control during stock market crashes.
“If you cannot control your emotions, you cannot control your money.”
Warren Buffett
Adjust your strategy and portfolio management according to your risk tolerance.
Find a way NOT to get spooked and to remain in control.
Take advantage of a market crash!
When you’re able to do that, then you can truly take advantage of the situation and benefit from discounted prices!
Conclusion
Have a stock market crash plan in place! Click To TweetHaving a good plan ready is the best way to make sure you are prepared to take advantage when a crash happens.
Do your homework and be prepared.
When the time has come, don’t be afraid to execute on your plan!
Don’t forget about your stock buying list or rebalancing checklist if stock markets tank.
This will give you some guidance and comfort at a time when stock markets are crashing and emotions are running high.
Remember, a stock market crash is not the end of the world! It’s usually one of the greatest opportunities to buy assets at discounted prices.
Just make sure you don’t let your emotions take over and always be prepared for such an event!
If I want you to take one lesson away here, it’s that you should think about how to take advantage of a market crash.
What are your thoughts on stock market crashes?
Do you see them as a negative or positive opportunity? What is your “crash plan”?
Let me know in the comments below!
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Take ownership of the opportunities your life presents, financially imagineer your dream life!
Matt
As a retired person my crash plan is to rebalance back to my target allocation after a crash. That way I sell bonds and buy stocks because the crash will have reduced my % equities below my target. I did that in March 2020 and will do it again next time.
Dear Steve,
Thanks for stopping by, this is the only right way to go about this as a retiree!
While we don’t know when the next crash is coming, the most important thing is to have a plan [what to do] when it comes.
Cheers,
Matt
That sounds like just my type of club, haha…. clever and fun! 🙂
Hey J., this club was totally up my lane as well, so sad they closed forever a few years ago, despite my 42 years of age, I’d still be going there every once in a while. But the lesson is sticky. Somehow we got conditioned like Pavlovs dog, and we are still “salivating” whenever a crash is near. Cheers, Matt
Good article and I liked your leading with the Mad Wallstreet story.
Very true that emotional management is very important in the investment journey especially when it comes to the club. Time to make the right decision which is more relevant to our budget allocation. Picking the right one will give an attractive ROI in the future.
Excellent article, I’d never heard of that club before but it sounds like a great time!
In terms of market crashes (or corrections), I invest only for cash flow so love unwarranted price drops like you’ve described. Price down / yield up, LETS BUY STOCKS!