Stock market crash is no longer a myth: where to invest to survive the downturn?
15:10, 13 March 2020
Although we do not want to admit it, it is happening: a stock market crash is no more a spooky story but a harsh reality.
A story of another Black Monday: what happened on March 9?
March 9, now known as Black Monday, is undoubtedly going to be a day to remember for international investors. For the first time since 2008, driven by fears of the coronavirus outbreak and the collapse in oil prices, the global financial markets experienced what could be fairly named a "crash".
Once the closing bell rang, the good old Dow Jones shed 2,014 points, representing a 7.79 per cent decline, its largest in history. This marked its 11th-steepest single-day slide, as well as the second biggest, in percentage terms, since 1987.
On that day, the technology-heavy Nasdaq Composite and broader-based S&P 500 also lost 625 points (7.29 per cent) and 226 points (7.6 per cent) respectively.
The five most valuable tech behemoths, namely Facebook (FB), Apple (AAPL), Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL), lost a total of $321.6bn in value, with Apple alone accounting for almost $100bn of that figure.
Stock markets plunged all across Europe, with losses of more than 8 per cent posted in Germany, France and Spain. The biggest fear-driven sell-off happened in Italy, with stocks in Milan plummeting by more than 11 per cent.
Around £125bn ($163bn) was wiped off the value of the FTSE 100 in its fifth-worst day in history, with the index dropping 7.7 per cent to finish the trading session below 6,000 points.
Some of the UK’s biggest businesses slumped in value by billions of pounds, with oil stocks recording the most severe losses. Shell (RDS) plunged by 18 per cent, while BP (BP) tumbled by almost 20 per cent.
Speaking of oil, the price of the black gold collapsed by more than 30 per cent, falling to about $35 per barrel.
The US’ Chevron (CVX) lost 14 per cent and France’s Total (FP) declined by 17 per cent in sustained global selling pressure.
This coincided with a major bloodbath in the crypto market, with the industry’s leader Bitcoin (BTC) falling nearly 10 per cent over a day.
Meanwhile, the VIX Index, which serves as a Wall Street’s fear gauge and measures expected future moves in financial markets, hiked to its highest levels since the infamous crash of 2008.
Frightened investors drew parallels with Black Monday in 1987, saying that stock dealing rooms had gone from “panic mode into pure hysteria” against the background of the double threat from the oil price war and the COVID-19 pandemic.
However, if we try to look beyond traders’ hysteria, is the situation really that bad? Could it be the other way around, with the recent Black Monday spelling profits to savvy investors? Is there even such a thing as the “best investment” when the market crash is here?
In this article, we try to answer these questions by finding out how and where to invest during the market crash to make the most of it.
What is your sentiment on BP?
How to survive a stock market crash: don’t try to tame the market, tame your emotions
First of all, take a deep breath. While panic is only natural, it is the last thing you want to experience when making investment decisions.
As obvious as it may get, to master volatility you need to know how to tame your emotions and innate cognitive biases. Always remember: savvy investors do not just base their decisions on one piece of data. Instead, they make in-depth research and refer to analysts’ opinions and forecasts.
The problem with falling markets is that they are mainly driven by emotions. And while they can lead to some wild short-term swings, they are always outweighed over the long run by reason and strong fundamentals.
Essentially, the key to overcoming the market turbulence is to be objective and flexible, being able to evaluate prices and make decisions impartially, regardless of what your current position is. Do not let fear suppress your ability to seek new achievements.
As one of the world’s most famous investors Warren Buffett once said: "It's been an ideal period for investors: a climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance."
Count your money wisely and invest it even wiser
Rule of thumb: do not trade with money that you do not have or might need to use soon. While investing is important, so are eating, keeping a roof over your head and paying bills. You should not invest cash in the market that you might need in five years.
True, even if there is a deep market decline, it will almost certainly recover over the next 10 years. However, if you needed the money you had already invested for something else, it may not be there for you while the market is still in turmoil.
Where to invest during a stock market crash?
Well, while it is crucial to choose your assets carefully, it might be even more important to stay well-diversified.
Do not over-concentrate on one area of the market. Discover different asset classes, industries and countries. Consider stocks, bonds, commodities and cryptocurrencies. Owning the right proportion of diversified investments is key to keeping your portfolio’s volatility under control.
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The way you allocate your portfolio purely depends on your trading objectives, time horizon and risk tolerance.
And last, but definitely not least – be patient. Remember the markets need time to recover. And while there is nothing you can do to speed up that process, there are smart decisions you can make today that will pay off tomorrow.
The majority of earlier market panics that seemed scary at the time appeared to be great buying opportunities:
If history is any example, we are now presented with a once-in-a-lifetime chance to start treasure hunting. So, where to invest when stocks fall?
Where to invest now: stocks that investors choose amid market’s hardships
Following the latest market news, investors are reconsidering their portfolios and choosing where to invest now. And while some viewed Monday's carnage with horror, others saw bargains.
Investors at Fidelity have been loading up on some of the most popular stocks such as Apple (AAPL), Amazon (AMZN), Tesla (TSLA), Disney (DIS) and Microsoft (MSFT) as these giants have seen their share prices tumble off of record highs.
They have also been buying a variety of ETFs that track the major indices such as Invesco's QQQ (QQQ) Trust Series and State Street's SPDR (SPY).
Some brave investors have even been purchasing shares of suffering American Airlines (AAL) and Boeing (BE) – stocks that had been hit particularly hard by the coronavirus outbreak.
Meanwhile, some analysts suggest that Axon Enterprise (AAXN) and Arista Networks (ANET) are two stocks that could still thrive during a recession.
Axon is crisis ready as its law enforcement products are not cyclical. And while governing bodies could cut budgets during hard times, demand for crime fighting is very unlikely to decrease, keeping the company’s business rather safe.
By offering a great service that goes well with other companies' products, Arista Networks, a cloud-network infrastructure firm, has punched above its weight and stolen market share from a large rival Cisco (CSCO). Whether or not there is a recession, Arista's customers will continually upgrade to keep technology current, allowing the business to stay afloat.
Finally, utilities, such as gas and electric provider NextEra Energy (NEE), could also be a smart way to weather this storm and generate long-term income.
In fact, some suggest that it never sounds like a bad idea to consider buying into businesses that supply basic-need goods or services. Regardless of the state of the economy, people will always need electricity or gas to light their homes and keep them warm.
Is there any 100 per cent “safe investment” to choose now?
Equity strategists at JPMorgan view the current market as oversold. They predict that the virus-related economic deceleration will continue to weigh on stocks. However, they also see a bounce as likely, considering low prices and the probability that investors will use any sign of strength to buy in.
Due to the latest rates cuts and the possibility for further ones, equities will remain the asset with the highest upside potential despite their risk.
While seeing retail investors treading into troubled waters is somewhat uplifting, it is still important to stay rational. Timing the market and hoping to get it right is pretty much impossible. The coronavirus has delivered a great number of new challenges that the global economy was not ready for. Over recent weeks, market swings have been rather dramatic. And just when a bottom may seem to be in place, stocks have collapsed even further.
So, what is the best investment during a market crash?
Unfortunately, there is no definite answer. In fact, it is even difficult to predict what the next move of the market could be during a sound economic performance, not to mention downturns.
As always, we recommend you to do your research and arm yourself with as much knowledge as possible before throwing your hard-earned cash into the market.
If you think you are not ready to make long-term investment commitments, but still want to try to profit from the market volatility, you can do so through contracts for difference (CFD), instead.
You can learn more about CFD trading with free online courses and stay on top of the latest market news with Capital.com.
And remember: gains and losses are like the Yin and Yang of everyday trading. One cannot exist without the other. Every professional trader makes losses, learns from their mistakes and moves on to another opportunity.
Markets in this article