As Global markets have recovered from the crash that happened in Feb-March due to covid, I thought it best to journal down my experience which could help me later on if faced with similar circumstances. These are some of the important learnings I had from my first crash.
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Don’t feel smarter when you are in the green. You’ll feel equally dumb when you’re in the red. Let your investment principles and emotional discipline dictate your worth, not your portfolio returns.
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In bear markets, be more active. It was my first crash and seeing my entire gains go down plus some more wasn’t fun to watch, so I stopped watching. I ignored the market throughout March-April. What I should have done instead is been more active, rebalanced my portfolio, picked up easy winners at beaten-down valuations. I avoided looking at the red.
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Get used to looking at red. Markets aren’t instant gratification that you choose a stock, buy it, and since then it never comes down. Markets in general take time to realize the true worth of a company. Sometimes it takes the company to compound earnings above expectations to get to their fair value, other times you’re just wrong and it was never undervalued. Again, don’t let red or green decide whether it was a good decision or not because they change every day, the company, its products, and the management stay the same.
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Don’t underestimate mass stupidity. I roll my eyes when I see people paying insane multiples for a worthless company and still make a profit. FOMO is dangerous and contagious. Instead, practice POMO (Pleasure of missing out). Any investment, no matter the multi-bagger returns, if it doesn’t fit into your fundamentals principles of investing, shouldn’t be regretted. That’s equivalent to regretting not buying a lotto every day.
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Don’t try to time the market or fight the trend. You don’t see it coming. Even if you do see a crash coming, when it actually does, it will paralyze you, especially if you are new or haven’t yet mastered point no. 3. Follow disciplined investing and keep cash at hand (like Buffet who’s been sitting on it since 2013).
Some lessons learnt in general, not related to the crash:
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Don’t sell out at a +50% profit and lose out on +500% profit. Not saying that every company will give a +500% or more profit, but selling just because you have gotten a 50% ROI and no other reason is stupid. That’s looking at the short-term price and not the long-term value of the company. Sell your shares if you feel something has changed in the company since you initially invested, be it low earnings, negative growth, fighting a dying market, change in management, etc. Don’t sell just because it’s overvalued. Just like undervalued stocks, markets take time to realize the fair value of an overvalued stock too, sometimes it doesn’t at all realize it (
Tesla). -
If you sold at +50% profit, stop avoiding the company. Resisting to sell a green portfolio is equally difficult as selling out of a red one. It’s okay if you booked profits purely based on price. You’ll improve at it with time, control your emotions better. What you shouldn’t do though is completely ignore the company that you just sold because it has since then risen more. Look for opportunities, is it still good? Does it still have the potential to give +500% returns? Keep aside the regret of selling out of a rising stock, reevaluate its fundamentals, and keep looking. It’s foolish to believe that it can’t go up any higher because it is already high (literally the entirety of Nasdaq).
Performance: So far in the year 2020, due to me not panicking and reacting to the crash, I have earned a decent 25.04% return on my portfolio (excluding dividends & mutual funds). If you have some feedback, I’d be more than happy to read 