We all know about the 2021 stock market crash. And investing in the stock market during such a market crash may seem extremely foolish.
However, most people tend to underestimate the opportunities and advantages of the market crash.
Now you might be wondering, “How can a market crash give advantage?” I think the author has gone crazy. “
Fortunately, I am completely fine.
But before moving further, you need to understand the true meaning of a market crash.
A bearish market does not mean a market crash, it has deep meant, so let’s understand that first.
What is a Stock Market Crash?
The stock market crash is a sudden and generally unexpected decline in share prices.
It could be a consequence of a significant disaster, an economic downturn, or the burst of a protracted market bubble.
A stock market crash may also be significantly influenced by public outrage over it, which can lead to panicked selling and more price falls.
Famous Stock market crashes include the 2008 financial crisis, the 2020 covid crisis, etc.
Market Crash 2021
Most people lose a lot of capital during bad market conditions. There’s one key thing to remember: you only lose money when you dump investments or sell stocks. Unless and until you’re invested in the business, you haven’t lost a single penny.
This is true because market crashes create panic and fear among people.
As a result, most people sell shares even at a very low price. And smart investors buy and keep buying at low prices.
Had he/she remained invested in the fundamentally strong company, he/she could have earned 10 times more returns in the future.
However, panic and fear are normal human behaviors. We cannot change them, but surely, we can overcome them.
This seems like a bit of philosophical material!
Let’s get back on track. What should we do during market crashes? And how are we supposed to prepare our investment strategies?
Dealing with THE Stock Market Crash
Well, there is a lot to cover on this subject, so here are some investment strategies and key things to keep in mind during unfavorable market conditions:
1. Don’t always buy 52-week low stocks
A stock’s 52-week low is the price at which it traded during the ongoing financial year. A 52-week low is determined using the daily closing prices of stocks and indices.
Most people think that stocks that fall from their upper limit will reach the same price again. As a result, people buy the stock thinking it is trading at a lower price.
There is nothing wrong with investing in stocks that are trading at 52-week lows. But investing in stocks right after analyzing one single parameter can be risky. It is important to do a thorough fundamental analysis and evaluate a growing stock.
A 52-week low could simply be a sign of the company’s unstable financial structure. The financial structure helps the company generate revenues.
Furthermore, if the structure is unreliable, the business will have a hard time making any profit. As a result, the stock price drops, reaching a 52-week low.
2. Sell off Junk Stocks to Invest in Good stocks at Lower Prices
Yes, we indeed have to buy stocks at lower prices and sell them at higher prices. However, this does not work every time.
In market crashes, most companies go bankrupt or incur huge losses, which are not easy to recover.
You must keep an eye on your portfolio of stocks and check which ones are holding back strongly and which ones are on the verge of going bankrupt.
Sell off those junk stocks before you lose all your capital and buy some other fundamentally sound growth stocks that are available at a lower price during the market crash.
Invest in stocks that you believe will give higher returns in the future.
3. Don’t buy macro economical related stocks
Macroeconomic stocks are those stocks that are highly affected by economic factors such as geopolitical war, virus outbreaks, commodity shortages, price hikes, currency depreciation, etc.
This has a particularly negative influence on stock market traders.
To examine the current Indian stock market condition, check the above-mentioned macroeconomic parameters at least once a week.
Smart investors must stay away from such stocks that are highly influenced by macroeconomic factors.
But then, where to invest? Don’t worry, we have got answers to all your questions.
4. Invest in the potential of Indians.
As we all know, the purchasing power of Indians is increasing massively. Especially the middle class, who were not even able to eat in restaurants a few decades ago.
Each day in India, 61,500 startups are registered with the government. And 3 out of 5 startups successfully turn out to be unicorns.
As a smart investor, you need to think about where people will spend the money.
Think about what they would eat, what they would wear, what they would buy, and where they would go.
You don’t have to think much; we have done all the hard work for you. Here’s a list of sectors that are expected to grow if the purchasing power of Indian’s increases.
Bottom Line:
Play smart during stock market crashes. Humans tend to make mistakes in a panic so avoid panicking and believe in your research skills.
Follow the above-mentioned guide and make a strong investment strategy.
I hope you enjoyed reading the article and have acquired valuable knowledge.
Let me know what changes you are making in your investment strategies in the comments below.