Here are my thoughts on last week's stock market crash, and how to invest during a crash.
The crash of 1987, known as Black Monday, wherein we witnessed the single largest decline of the stock market.
The dot-com crash of 1999-2000, whereby .com companies were overhyped, hence, overvalued.
The housing crash of 2008, due to overvalued Mortgage-Backed Securities.
Last week’s drop in asset prices could be attributed, partly, to the transition of growth stocks to value stocks (from Tesla to GM), and partly to the transition to bonds from stocks. And depending on your asset allocation, you may have not seen a huge impact on your portfolio. Companies in the Nasdaq were hit hard, as well as cryptocurrencies, such as Bitcoin and Etherium.
As Cathie Wood explains in the most recent ARK Invest video, individual investors have 3 main advantages, compared to institutional investors:
We do not have to rely on benchmarks. We do not have to justify our returns based on how much better or worse our portfolio did compared to an index, such as the S&P500.
We do not have a short term time horizon. In contrast to most fund managers, our time horizon could span from 5 to 40 years, depending on when and if we want to cash out.
We can be generalists. We can simultaneously study different sectors, and not be constrained on what sector specific analysts are predicting. Given the interplay of sectors for most growth stocks, this gives us a unique advantage.
In terms of strategy, you should simply buy the dip. Assuming that your investments are well researched, a change is stock price should mean nothing about the value of the underlying asset. If you’ve done your due diligence, a market crash is just an opportunity to buy assets at a discount.
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