What you did in 1999-2001, or 2008-2009 is more important than what you did in 2002-2007 and 2010-2019 combined.
The majority of your lifetime investment returns will be determined by decisions that take place during a small minority of the time.
More so, how are you prepared for the worst time is more important than what you are doing in good times. Investing activities is quite different than
Activity Is Not Progress In Investing.
(Source: Google Finance)
It is an oxymoron that an amateur investor (so-called) is giving advice about the worst time in stock. Who, apparently, watched the 2008-2009 from the sideline.
My sole intention here is not to give advice, rather prepare myself at the worst time to come. The certainty of its coming is known, even though when it is coming is unknown.
Volatility
If stocks fall 10% and recover after a month, that is volatility. I believe, long term investors are quite prepared to tackle this short term ups and downs.
However, if stocks fall 60% and take a decade to recover the loss, that is what we want to be prepared from.
How to be prepared?
The one and only way to be prepared for market crash is to hold cash. A lot of them.
I know it. But, I am so reluctant to do it. Primarily because of fears of missing out.
To make things worst, I often trade in margin. (More on this in my future post)
When the stock market crash, the only happy investors are the one who has tons of cash to invest. Berkshire Hathaway has $120 billion in cash or cash equivalent. Warren Buffet will be jumping up and down in happiness, while the rest of us will be drowned in sorrow if the current market reverses its course.
Unprepared and irrational investors will sell their holdings instead of buying more during market crash. This, indeed, is a huge opportunity for a prepared mind.
Final Thought
In general, it is inevitable that the stock market will eventually go up in the long term. However, in the short term, it swings wildly. What you do when it swings down is what really defines how you perform in the good times.
This will determine the true outcome of our investment and shifts us from good to great. Or from good to bad! The choice is entirely ours.
Disclaimer: Long position on Berkshire Hathaway