{"id":3706,"date":"2021-09-15T09:25:20","date_gmt":"2021-09-15T08:25:20","guid":{"rendered":"https:\/\/estably.com\/the-right-mindset-for-the-next-crash\/"},"modified":"2023-10-31T10:57:37","modified_gmt":"2023-10-31T09:57:37","slug":"the-right-mindset-for-the-next-stock-market-crash","status":"publish","type":"post","link":"https:\/\/estably.com\/en\/the-right-mindset-for-the-next-stock-market-crash\/","title":{"rendered":"The Right Mindset for the Next Crash"},"content":{"rendered":"\t\t
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Estably Blog<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The Right Mindset for the Next Crash<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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September 15, 2021 | Crisis Management<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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We don\u2019t know when the next crash will come. Nobody does. What we do know is that a crash\u00a0will happen<\/strong>\u00a0again at some point.<\/em><\/p>\n

We\u2019re not pessimistic, just realistic. It\u2019s a proven fact: Since 1950, the S&P 500 has seen\u00a0double-digit declines<\/strong>\u00a0on average almost every two years.<\/em><\/p>\n

The good news? Every single crash has been followed sooner or later by a recovery. And with the right approach, you can even\u00a0emerge as a winner<\/strong>\u00a0from the next crisis!<\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Don\u2019t Play Hero<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\u201cFar more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves.\u201d\r\n\r\n\t\t\t<\/p>\n\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\tPeter Lynch, Value Investor<\/cite>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/blockquote>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Don\u2019t try to do damage control and sell your shares in the middle of the crisis.<\/p>\n

Best case scenario, you might manage to bail out\u00a0just before the low point<\/strong>. Soon, however, you would be faced with a much harder decision: When do I get back in?<\/p>\n

After all, the particularly bad days are usually\u00a0followed by exceptionally good days<\/strong>. If you are not fully invested then,\u00a0you miss out on a large part of the return<\/strong>:<\/p>\n

For example, if you had invested $10,000 in the S&P 500 in 1998 without missing a day, you would have quadrupled your initial investment 20 years later to $40,000. If you had only\u00a0missed the 10(!) best stock market days<\/strong>\u00a0during this period, you would have ended up with only $20,000.<\/p>\n

So after 20 years of investing, just\u00a010 single days<\/strong>\u00a0made the difference between\u00a0100% and 300% return.<\/strong><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Recovery Often Comes Faster Than Expected<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Admittedly, it\u2019s not easy, especially for newcomers to the stock market, to watch share prices plummet and their savings lose value. Even more so when you are not supposed to intervene. However, stock markets often\u00a0recover faster than expected<\/strong>:<\/p>\n

The S&P 500 suffered average intra-year lows of 14.3% from 1980-2020 but still managed a positive return at the end of the year in 31 of 41 cases.<\/strong><\/p>\n

The lesson?\u00a0Stay cool<\/strong>, even when markets are down double digits. The probability of a\u00a0positive result<\/strong>\u00a0at the end of the year is high.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Guide to the Markets \u2013 U.S. Source: FactSet, Standard & Poor\u2019s, J.P. Morgan Asset Management. Data are as of June 30, 2021.<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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An impressive example of a\u00a0rapid stock market recovery<\/strong>\u00a0could be observed in last year\u2019s COVID crash.<\/p>\n

On\u00a0March 23, 2020<\/strong>, the S&P 500 reached its low point. Barely\u00a0six months later<\/strong>, it had already returned to its pre-crash level, and less than a year and a half later (in\u00a0August 2021<\/strong>), the index had even\u00a0doubled<\/strong>\u00a0since its low.<\/p>\n

This means that anyone\u00a0who bought at the low point<\/strong>\u00a0of the Corona crisis was able to enjoy a return of 100% one and a half years later. This is the\u00a0fastest doubling<\/strong>\u00a0after a stock market crash since the Second World War.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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In Every Crisis, There is an Opportunity<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\u201cWhether we\u2019re talking about socks or stocks, I like buying quality merchandise when it is marked down.\u201d\r\n\r\n\t\t\t<\/p>\n\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\tWarren Buffett, Value Investor<\/cite>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/blockquote>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Do you want to behave like an\u00a0experienced value investor<\/strong>\u00a0in the next crisis?<\/p>\n

Then swim against the tide and\u00a0invest more<\/strong>\u00a0when prices have fallen, provided you have the necessary funds.<\/p>\n

Since every stock market crash was sooner or later followed by a\u00a0recovery<\/strong>, in the past it was precisely these lows that were\u00a0profitable entry points.<\/strong><\/p>\n

Driven by emotions and expectations, many market participants underestimate the actual value of a company during a depressive phase. Often, however, a crisis only affects the share price and not the intrinsic value of a company.<\/p>\n

Our task is to recognize such cases and to take advantage of the\u00a0emotional fluctuations of the market.<\/strong>\u00a0If we have the chance to buy a still excellent company at a lower price, we gratefully accept this offer.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Don\u2019t Make it Unnecessarily Difficult for Yourself<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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A well-intended advice: Try to\u00a0ignore headlines about the financial markets.<\/strong>\u00a0If it becomes difficult to resist temptation, we recommend solving the problem of self-control analogously to Ulysses in Homer\u2019s story with the sirens.<\/p>\n

In order to resist the sirens\u2019 song and not be shipwrecked by it, he plugged his crew\u2019s ears with wax and tied himself to the mast so as not to get to the wheel.<\/p>\n

Analogously, our advice is:\u00a0do not look at your portfolios for a longer period of time<\/strong>\u00a0and avoid all financial news if possible. The positive effects of this approach have been proven many times. We keep our ears open for you in the meantime!<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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The next time a crisis hits, remember the story of Ulysses and try to resist the panic-inducing financial news. (Source: https:\/\/classical-inquiries.chs.harvard.edu\/an-iliadic-odyssey-as-a-song-of-the-sirens)<\/figcaption>\n\t\t\t\t\t\t\t\t\t\t<\/figure>\n\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Crisis-Resistant Companies in our Portfolios Unternehmen in unseren Portfolios<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Finally, we would like to draw your attention to the fact that\u00a0our portfolios are different<\/strong>\u00a0from the stock markets or indices.<\/p>\n

Our stocks are\u00a0handpicked<\/strong>. One of the most important criteria in selecting our companies is their resistance to crises. We prefer to invest in companies that have\u00a0already survived crises<\/strong>\u00a0in the past and have\u00a0sufficient liquid assets<\/strong>\u00a0to survive further ones.<\/p>\n

Added to this is the concept of the \u201cmargin of safety<\/strong>\u201c. The greater the difference between the actual value of the company and the share price, the further the company\u2019s value may fall in a weaker economic phase in order to still be above the share price.<\/p>\n

Our risk management therefore starts with the selection of stocks, not just with the crash.<\/p>\n

When a crash occurs<\/strong>, we reanalyze our portfolios. Which companies have undergone fundamental changes as a result of the crisis? Which companies are now even more attractive in terms of price to make any additions?<\/p>\n

For example, after assessing the impact of the COVID crisis on our companies, we only\u00a0sold a few and bought others<\/strong>. Particularly during crises, we believe it has also proven worthwhile to rely on the expertise of our portfolio managers instead of leaving the hard decisions to algorithms.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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We\u2019re Here for You<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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\n\t\t\t\t\u201cWhen written in Chinese, the word \u2018crisis\u2019 is composed of two characters. One represents danger and the other represents opportunity.\u201d\t\t\t<\/p>\n\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\tMax Frisch, Schriftsteller<\/cite>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/blockquote>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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Viewed rationally, a stock market crash is far less threatening than it is portrayed by the media.<\/p>\n

In summary, our tips for you:<\/strong><\/p>\n