In a panic the first one to the exit wins.
Monday morning (2/24/20) I was 130% in stocks, by the close I was 100% cash.
Hopefully I have got this wrong but if I haven’t the market will crash. The non-China infection numbers are rising at a 20% a day rate as I write and this is a genie that is going to be hard to put back into the bottle. It won’t necessarily be the disease that does the damage but the reaction of people and governments to it.
If I’m wrong I’m very happy because I will only ding myself for a few points. If I’m right it then become a matter of far will the market will fall. A 10% drop is a no brainer, a 25% drop is a strong possibility and a 40% drop is not out of the question.
Its not impossible that the US and EU will do a huge QE and push the market up, but we all must admit the fog of possibilities is dense.
Yesterday I was going to sell 25% of my holdings but when I started the process it was clear the market was malfunctioning with some market making systems for the UK market ‘bid less.’ Where in the chain of connectivity this lay is unknown, but this was enough for me to decide to get out entirely. A market that fragile is not a place to play chicken in. Fast markets can be lethal if you trade on slow tools and Monday was the first ‘fast market’ in a very long time. It simply cant be the end of the matter.
So what is an investor to do.
As always PPPPP. (Proper planning prevents poor performance)
Get a plan. Then stick to it.
It can be to hold it on through. It doesn’t matter so much what your plan is as it matters to avoid being plan-less.
For me my plan is. Wait till its over, then buy back.
This looks for the stats to be April, perhaps May.
So how does an investor trade a crash.
Here is a diagram.
Now most crashes are not V bottomed unlike the heavy correction of 2019. Unless there is a very strong reason for a V shaped crash, bank on the W shape. Remember strong recoveries a not trend reversals.
Bears rally hard and drift off. The crash is over when the market drifts up and fall hard on news.
You should not try to catch the bottom. After a crash there are days even weeks to reenter and its better late than too early.
Without this contagion we were in for a very good market year, but it seems that likelihood is all but dead. The coming disruption will wash out over time, but how bad this situation is going to get in the coming weeks is difficult to judge.
If it crashes there will be lots of opportunities for investors to get cheap stock and that should definitely be part of your plan.