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Investing in a down market
A roadmap for rough terrain
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Investing is easy when the times are good. After all, even a dart-throwing monkey can beat the market when a roaring bull run is in progress. But there’s a lot of doominess that comes into play when the direction of the market suddenly reverses. This makes sense because panic and distress usually get the clicks and attention. But if you are looking to keep your cool and make the right investing decisions, the news isn’t of much use.
What you need instead, is a framework and a mindset to handle uncertain times. So here’s a bonus post compiling our best articles on investing in tough times in one place - Consider this a ready reckoner whenever the market is rocky!
Preparing for the storm
Most mistakes and heat-of-the-moment decisions are triggered for the simple reason that you don’t know what’s going on, and you panic and defer authority to the experts. That’s when you are most susceptible to the news, your friend's advice, or Jim Cramer. The antidote to this is to learn about the mechanics of the market and be aware of how history has played out. Armed with that knowledge, you can think about the market in an informed way. Here are some posts that’ll get you up to speed:
Fed Rate hikes - One of the most important macro factors that affect the market is the Fed Rate, and it pays to know how the market has reacted to rate hikes in the past. Here’s the follow-up article which checked in on how the market was playing out after the rate hike started.
War - When the war started between Ukraine and Russia in February, the market reacted sharply. This analysis covers how markets react to global conflicts and how they bounce back in the long term.
Recession - A detailed deep-dive into everything you need to know about investing in recession times.
Now that you have a sound understanding of how things work, you can start planning strategies to protect against tough times and even profit off short-term fear for long-term returns!
Buying the dip - “Buy the Dip!” is standard advice. Does it work? What does the data say? What would happen if you held back? Could you make more by doubling down instead? This detailed post dives deep into every aspect of buying into market crashes so that you’re fully prepared to make a move when the time for action arises.
Bear Market Strategy - Whether they last for a few months or a few years, bear markets are times of uncertainty and fear. But some investments do better in bear markets than others, and by taking advantage of the information in this post, you can plan ahead and profit.
Alternative investments - You know how the market reacts, and you’ve covered your bases. Now, why not explore other assets which can help you hedge your portfolio or even enhance its tolerance to risk? Check out these pieces on Commodities and Gold to gain a different perspective fully backed by data and research.
Steeling the mind
All plans look good on paper, but they’re just dust in the wind if you don’t understand your priorities, weaknesses, and the things that can break you. Investing works only if your emotions don’t get the better of you in trying times. Here are some pieces on the human side of investing to understand yourself better.
Red Pill, Blue Pill - The allure of maximum returns is what draws most people to investing. As you spend more time on it, you begin to realize that there’s more to life than chasing that magic number. Maybe you want to sleep better at night, maybe your time horizon is shorter, or maybe you want to participate more actively. This article is about how to design a portfolio that suits your priorities, the trade-offs involved, and all the options that you can choose from.
Lift-off - Your initial experience can play a huge role in how you perceive investing for the rest of your life. A bad start can derail a lifetime of potential returns. A head start, on the other hand, can be life-changing. Read this piece to make sure you fall into the latter camp!
Future Proof - If you’ve been around for a while, you know by now that you can’t control the hand you’re dealt. The most you can do is decide how to play it. Anticipating the possibilities, planning for tough times, and building a resilient portfolio is what you need to stay invested for decades - And we know that’s where most returns come from.
I hope this recap serves as a good reference for you - and also as a good pick-me-up for any friends who are going through a tough patch in the market. Share this piece with a friend, and they’ll thank you for it later. It might be just the thing they need to reorganize and get back on their feet.
If you enjoyed this, please take a second to hit like and share it with a friend! Do let me know in the comments if you would like to see more bonus articles like this.
Disclaimer: I am not a financial advisor. Please do your own research before investing.