There seems to be a lack of really solid advice on what to do when the market starts tanking on you... aside from go for a walk / turn off your phone. Whilst these are all sensible, there are a couple of things you can be thinking about with you investments:
-
How much debt does each of my companies have? This isn't so relevant now, because actually the economy is doing quite well, but if the market was going down because of economic concerns (i.e. Mar-20) then you really don't want to be holding companies with debt. Even if a company has a small amount of debt, if profits go to 0 (as is the case for many companies in recessions), the company will still breach its covenants (and have to raise equity as a result).
-
How illiquid are my investments? There will always be a natural buyer for Apple, Google etc. Even if these are index funds. You can't say the same for your $100m market cap investment. There will be sellers from active funds and retail though, and due to the illiquidity you can easily loose 30%+ just on a few small mistimed trades.
-
Is this a 'concept' stock? I'm sorry but if you own a 'green tech' company with a valuation in the $10's of billions, with small revenues, and just the promise of a bright future.... well, the shares could still half on you and nothing would have changed. Atleast if the business has earnings, eventually the valuation ratios make it compelling enough to have a floor.
-
Are there liquid investments which are proper businesses that have also been hammered that I can buy? When/if the market rallies again, people probably won't be brave enough to dive straight into your high risk concept illiquid stock. In fact, in my experience people jump into the liquid good quality names first, that they can now buy at a discount to normal. Its only later when market confidence has fully return to people plough back into these names.... so its a win win, market goes up you got the good businesses which probably rally first, and if market goes down you got the good businesses where there is some kind of floor.
-
Once youve done all this. Hold your nerve. I've seen more 'crisis' and 'panics' then I care to remember in the market. I was a fund manager in the UK on the day of Brexit, when blood was on the streets and some stocks were down 75%. A year later it would have been an amazing opportunity to buy some great businesses (note, the poor quality businesses didn't recover till much later).
-
The market lurches from one narrative to another. Biden. Brexit. Trump. Greek debt crisis. Spain debt crisis. Credit crisis. Oil market oversupply. Some random emerging market blow up somewhere. The market usually always prices in a much more negative outcome that actually occurs. This is because of the 'tail risk'. There is a 'tail risk' being priced in that inflation will end up at 15% in the US... the moment the market forgets about that, and see its a few % at best, it will probably calm itself down.
Submitted March 07, 2021 at 06:03AM by Mortal1ty1337 https://ift.tt/3v4Ygtg
