Stock market crashes are generally unpleasant, often traumatic events. They can often be drastic and dramatic, causing significant losses for investors. You can check here for reasons why they may crash.
If your stocks are crashing in Australia, it is vital to remain calm whilst making sense of precisely what has happened. Just because your shares have dropped does not mean that you should automatically sell them – it pays to investigate the reasons behind the drop before making any decisions.
Investing in the stock market is a long term investment strategy that you should approach with a cool-headed and rational mindset. Even if your portfolio has just dropped significantly, it does not mean that you should immediately sell out of every share.
Analyse the Initial Drop
Please look at how much your shares have fallen by and what this means for their value. Has the entire Australian share market dropped in value? If so, this might indicate a macroeconomic event such as a commodity price crash affecting commodities companies.
Or perhaps there has been an increase in supply resulting from new products being launched – you can use historical data to predict whether or not these events will affect future share prices. What about news sites – are your stocks being discussed in any negative way?
Find Out if You are Under- or Over-Exposed to the Sector
Investing based on gut instinct is a widespread mistake during times of duress. Not all sectors fall in value at once – and taking a look at what has happened over the past few days, weeks and months can give you insight into which ones might be particularly vulnerable right now.
Does this match up with your portfolio? If it doesn’t, there’s no reason to panic just yet. Step back from your portfolio and try to figure out whether you’re underweight or overweight the market as a whole. This will help you to pinpoint why your shares have fallen.
Check the Company Financials
Whenever there is a stock market crash, some companies will inevitably go bankrupt. This means that not all share prices will recover once the markets stabilise. So if you’re looking to sell, make sure only to do so if the company is in good financial health.
By looking at their latest annual report or checking out websites like ASIC’s company register, you can do this.
Consider Selling Part of Your Holdings, Not All
It’s natural to feel panicked when your stocks start crashing, but selling off all of your shares might not be the best solution. Remember, crashes are usually temporary, and stock prices always recover – so it doesn’t make sense to sell low and buy back high If you’re unsure about what to do, consider selling just a part of your holdings. This will help reduce the overall risk in your portfolio without completely cutting your losses.
Consider Buying Back if the Price Drops Even Further
On the other hand, if the stock price continues to drop after you’ve sold, it might be a good idea to buy back in. This is especially true if the company is still in good financial health and you’re confident that they will recover.
You can do this by setting a limit order – this will allow you to buy back at a specific price point, even if the markets are falling rapidly.
Stay Up-to-Date with News and Events
It’s crucial to stay up-to-date with news and events that might affect your share price. Learning about what has happened is an excellent way of predicting future movements, which will, in turn, help you to make better decisions.
Many resources are available for investors looking for more information – sites like Google Finance or Seeking Alpha provide current news and data about companies, which you can use both before and after stock market crashes.
Consider Professional Assistance
Lastly, remember that help is at hand if you feel overwhelmed by the latest economic news. You can always speak with a financial expert or broker who will be able to tell you whether or not it’s time to sell – this falls under their job description.
If all else fails, remember that you’re not alone in this and that a professional can help guide you through these difficult times.