What to do during a crisis

April 29, 2021

What to do during a crisis?

Today, I want to share what I learned from one my mentors. And, as I always do, I add my own experience to this and combine with knowledge from other experts in the field of investing and trading. 

What I am about to share is not easy, but the steps are simple. 

That means the tricks are not complex, and it is not easy. That means it requires the right mindset and the right attitude.  

1) When people panic, stay calm.  

Get a proven strategy, follow the rules. This will help you to keep your emotions out of the game. 

It is no big science behind being a successful investor or trader. It requires a foundation and the necessary tools, then you can improve, and make money when the general public is fleeing the market 

2) Understand the markets 

Understand that there is something called the psychology of the market cycle. That is people experience certain emotions during different times and phases of a cycle. 

You would also need to know that there is something called a bull market, and there is something called a bear market. Since 2009 after the market crash, we have been in the history’s longest upward trending market. This is what we call a bull market. If this is the only time you been looking at the market, you might not have experienced other circumstances. 

Knowing what to do when the price falls will be key to your success. There is nothing wrong in buying when the market and prices are going down. It just means you will be in that investment for a longer time. Preparing yourself for what to do will also help with taking the emotions out of the game. What happens when prices go down, is that the position you are in, loses its value. They are not a loss, because you only lose if you sell. Anyway, you may see the value of your portfolio decreasing. That might lead to a situation where you doubt yourself. “Did I do anything wrong?” 

Understand that markets go up, and they go down. Remember the first point, stay calm and follow the strategies. A proven strategy, rules, and a mindset prepared for ups and downs, will make you profits. Remember, opportunity is a transfer of wealth from those who are unprepared, to those who are prepared.  

3) Risk management 

Learn proper risk management. Whether you do long-term investing, or short-term trading, you need risk management. 

When trading, it is common to only risk 1% of your entire portfolio. Some accept 2%. With investing, I want to dig into the financial situation of the company. There are other things I utilize to do proper risk management as well. All of my techniques are in place to preserve my capital, so when I finally invest it, I am likely to get profits 

For example, diversification is such a technique. It goes in terms of sectors and industries, invest and trade in financial instruments that are not related. Have you bought shares in Nike, Adidas, H&M and Louis Vuitton? If something happens in the clothing and fashion industry, do you think all of these companies might be affected at the same time? Probably.  

Diversification is also about when you buy into your opportunities and how much you spend at certain times.  

4) Think long term 

When the market is going down, as it usually does during a crisis, you might be in your investments for the long term. Are you investing in solid companies? 

Warren Buffet thinks ten years ahead. What happens on a daily basis is just noise for him. The guy might not even be living in ten years, still he sticks to his principles.  

Stay calm, do not panic 

5) Unrealized profit and loss is only a profit, or a loss, when you sell! 

With trading we would be in and out of the market within short time periods. With trading, we use a feature to minimize our losses which we call a stop loss. 

With investing, however, we are in the market long term. 

If you invest in something solid, it doesn’t matter that it has gone down 50 %. If you also utilize feathering, which that you spread the money you are willing to risk and invest a portion of the total sum at different price levels, you can lower the average price. 

So even though your asset is lower in value now, it doesn’t matter because we think long term, we stay calm, we invest in solid companies, we diversify and we feather our money to lower our average price. 

The only people that lose money are the ones that have to sell now.   

6) Get your mindset right 

If you have listened to one of the previous episodes, you might remember that I have mentioned that you could benefit from spending as much time on analyzing yourself, as you would spend on analyzing the market 

A tip to help you perform in the best possible way, and to keep your emotions under control, is to take a break, regardless of what is going on. Do the things you value most in your life. Go and get some great experiences, spend time with family, get a treatment. 

This helps you remember why you want to grow your savings account, your financial freedom account, your wealth account. Thus, it can help you reset and make you invest and trade with your brain, and not your heart. 

7) Surround yourself with the right people 

In order to hold yourself accountable, to keep the motivation up, to have someone to discuss with, can be key factors to stay on the right track during a crisis.  

8) Replicate the experts 

Learn from someone who has a proven system, who has good values and someone who has got perspective. Perspective is gained when you have experienced different markets, both bull and bear markets.  

9) Learn from your mistakes 

That means you would benefit from keeping track of your investments

The key to success is not to repeat any mistakes.  

These steps can be of great benefit. Let me know if you want guidance to implement them!

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