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Being prepared for a stock market crash is not an over-night thing. Like an Olympic athlete, you can't wake up on the day of the match, do five pushups, prop yourself up with a hoo-ha in the mirror, and win big. It takes time to learn the skills, and even longer time to establish the muscle memory. The twist of the story is that knowing the skills and having the muscle memory to repeat them is not enough to protect yourself against big market crashes. It would help if you also build the emotional resiliency to deal with the ups and downs of the market. And, that's how a savvy investor makes her portfolio crash-proof.
Starting to invest and crash-proofing your investments involves learning to think probabilistically, building the mental muscle memory to adhere to the process, and, more importantly, building the emotional resiliency to stick to the process when all hell breaks loose. In 2017, I wrote a piece about how to prepare for a stock market crash to demystify the process. The purpose of that article was and still is to follow the footsteps of an athlete that prepares for Olympic games. The only difference is that our Olympic is called a stock market crash.
I'm refreshing the original 2017 post with the hope that it helps a new cohort of stock market investors to get ready for the next market crash. If you are starting to invest in the stock market now, this is for you!
It was a heated conversation for three days all day at Stock Card HQ. I'm not going to lie to you. We raised our voices a couple of times. What were we talking about?
It all started when the cautionary memo of the billionaire and fund manager, Howard Marks, landed in our mailbox. The man is a legend in the investing industry, and his cautionary tales are our bedtime stories. We read the memo, and the debate started. We were discussing Howard's note on the impending stock market crash. But, our discussion wasn't about what you are thinking! We were not debating whether a crash is possible or not. Neither, we were trying to predict whether the crash is this month or the next. All intelligent investors know a crash is always a possibility; it's not a matter of IF but rather WHEN. Knowing that a crash is impending, we were discussing how we would prepare our portfolio for a market crash. After hours of conversations, discussions, arguments, modeling, and researching how some of the best investors in the world have survived the past market crashes, we came up with our approach to crash-proof our portfolio. You know... how you baby-proof your house when a new bundle of joy is due. We wanted to share with you how we get our portfolio ready for when the market's bundle of joy arrives.
This article was originally published in 2017 in preparation for the expected market crash back in 2017. It is still as relevant as it was back then.