Part 1 of 2
INVESTMENT guru Warren Buffett said that when the going gets tough, the tough goes shopping. No, he didn’t say that actually, but he did suggest that when the stock market plunges, go buy stocks – dirt cheap stocks.
1. Go shopping:
See? I told you, he did say that. Instead of selling, buy. Go on the offense. In bull markets, investors occasionally find reasonably priced, wonderful businesses. But they can rarely find wonderful businesses trading at a significant discount to their fair value. Stock market crashes are the rare times when high-quality businesses can be found in the clearance aisle. Go shopping! Tell your spouse that Warren said so.
2. Resist an emotional urge to unload stocks during a downturn:
It’s human nature to sell as stocks fall for fear of falling further. Resist that urge. Remain calm. As Buffett has said, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.
It’s a game where temperament and patience are more valued than IQ.
3. Recognize that stocks can fall far and fast:
There’s always a risk that a major downturn. Stocks not only fall, they fall often. There is simply no telling how far stocks can fall in a short period. Stock market declines are inevitable – and they will come in all shapes and forms. So be prepared.
4. Stay invested:
While stock market crashes and major downturns have proven to repeat throughout history, they bounce back and do so even stronger. For example, the Dow Jones Industrial Average has risen an average of 10.3% annually over the last 100 years. That return is for people who stayed in the market, not those who liquidated during downturns.
5. Resist irrational and emotional urges during a downturn:
To be able to make good decisions during a stock market crash, you have to remain calm. That’s how you enjoy high returns from the stock market.
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
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He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].