Hi guys, it's Mark.
So, the stock market will crash.
It's happened time and time again.
It's a scary truth,
but there's really nothing we can do about it.
But, that doesn't mean we can't prepare ourselves
to not only survive, but thrive during a crash.
I've been investing for more than 30 years
and as you can imagine, during that time,
I've experienced a lot of these crashes.
And, I'm not just talking about when I used to race cars.
To be honest, investing is a little bit like motor sport.
It can be a very bumpy ride.
In fact, the S&P 500 has seen a 10% drop
38 times since 1950,
which works out to a minor crash every 1.8 years.
During that time, I built my investments
to over a million dollars starting from nothing,
and weathered three different major stock market crashes.
So, today I thought it'd be a good idea
to discuss the three stages of a crash,
so you'll be able to outsmart other investors
and hopefully make some money.
While you're smashing that like button
for the Eltube ugerythm, let me just remind you
that this video is based on my own personal experience,
and it shouldn't be taken as financial advice.
Right, all done? Fantastic!
Let's jump into it.
Number one, the honeymoon phase.
Just think about when someone you know got married.
They were probably totally obsessed with each other,
as everything was just so new and so exciting.
During this time, it's extremely hard to see
what could ever go wrong.
And, let's be honest,
you probably wouldn't wanna think about
the negatives anyway.
This is very similar to the stock market.
When I start seeing this blind happiness,
I prepare my investments for when everything
comes crashing back to reality.
And, if my wife's watching this,
I'm talking about others, of course, not you my love.
Before the 2008 financial crisis,
there were a couple of things that I noticed
that really made me cautious about the future.
First was the boom in consumer spending.
Everyone had money.
They were spending thousands and the economy was thriving.
So thriving to the point I could have probably sold
a house brick to a customer in my shop
and claimed it was the latest tech gadget.
Okay, maybe I'm exaggerating.
But the point is, people were buying
so many unnecessary items,
as money was burning a hole in their pockets.
The current NFT craze seems very similar to this.
Never in a million years would I have thought
people would be buying JPEG image files
for millions of dollars.
Don't get me wrong, I am very interested in the NFT space,
but I do think prices are extremely inflated.
Maybe I'll get in once everything dies down a bit.
The second thing I noticed in 2008
was the increase in the number of people
buying houses or refinancing.
This is because it was easier than ever to get credit,
as the housing market was booming,
which meant if people were unable
to pay off their mortgages,
then the bank could just take back their properties
without losing any money.
I think the banks and regulators
have learned from their mistakes in 2008,
as it's now much harder to take out these kinds of loans.
But, interest rates are pretty low currently,
which means lots of people will be refinancing.
Now, it's one thing noticing these little clues,
but it's another thing actually taking action
and preparing yourself.
Between 2007 and eight,
I could have just gone along with the crowd
as the general herd mentality was that everything was great
and nothing would ever go wrong.
But instead, I started to prepare my investments
for the worst.
At the time, lots of my friends and fellow business owners
didn't quite understand the decisions I was making.
They may have even seen me as a bit of a coward,
but from my perspective,
I didn't think they understood
just how much risk they were taking.
So, if your spidey senses start tingling,
these are some of the things you can do
to prepare yourself for the worst.
First, I would evaluate and minimize
your risk level wherever possible.
Personally, I'm not focused on chasing crazy high returns
as that's unsustainable for the longterm.
I just want to be making small gains consistently,
so my money compounds.
I always think about the story of the tortoise and the hare.
I know it might sound boring,
especially coming from a boomer like me,
but slow and steady does win the race.
If you're new to investing,
there's a high chance that you haven't experienced
a real market crash.
It can be horrifying to see your portfolio
completely halving value and sitting deep in the red
for a brief period of time.
So, you have to ask yourself
if you can mentally handle this type of drop
without selling all your investments.
Secondly, I would start to reduce my leverage.
Now, on one hand, leverage is a great way
to accelerate wealth, but it can also be very dangerous.
In 2007, I borrowed money from the banks
to purchase rental properties.
And, in a perfect world,
the tenants would just pay off the mortgages
over many years.
However, nothing is ever as easy as it sounds,
so I made it a priority to pay down those debts
to a reasonable level, just in case.
Mark, stay on topic.
You were talking about the stock market
and not real estate. Dislike!
Okay, I hear you, very cool and handsome hater.
Leverage is used a lot in the stock market too.
And it's called margin,
which is essentially investing with money that isn't yours.
Now, this is a great idea if you buy stocks
that are rocketing in value,
as you'll be making so much profit,
you've got nothing to worry about.
But, the issue here is,
you never know which way a stock is going in the short term.
If a stock crashed too far,
you're invest in that may issue a margin call,
which means you have a limited amount of time
to pay off your debt.
And if you don't, your brokerage may sell your stocks
at the bottom of the market
to recover the money you borrowed.
If this is something you're considering or even doing,
then if I were you,
I would be paying some of this debt off.
I never use margin,
and that's a personal choice.
And, I'm well aware by not taking the risk,
I'm missing out on some potential profits.
The truth is I've seen too many of my friends
go from millionaire status to broke in a blink of an eye.
And, now I just stay well clear of it.
Thirdly, I would start saving some extra cash
in a high interest savings account.
I know always bang on about having an emergency fund
of three to five months of your living expenses,
but I'm talking about saving even more cash.
I did this between 2007 and eight,
and from the outside, it looked a bit strange.
The market was booming and by leaving my money in the bank,
I wasn't taking advantage of it.
However, I didn't take this decision lightly.
I'll talk more about this when we get onto the next stage.
I actually remember the exact moment
I chose to slow down my investments
and start holding more cash.
It was when my hairdresser started to ask me
what stocks I was investing in.
When everyone starts getting comfortable
with the idea of investing,
it can be a sign that a bubble is forming.
The trouble is, at the first sign of a crash,
lots of people panic sell,
which drives the prices down even further,
leading to a spiral of doom.
Finally, I would make sure my investments
were properly spread out.
This is called diversification,
and it's one of the best ways
to help withstand a market crash,
as quite simply put,
you haven't got all your eggs in one basket.
This is all because you never know what sector
is gonna be hit the hardest.
I mean, who would have thought
restaurants would have been a poor investment,
as everyone needs to eat?
But, the pandemic shocked all of us
by forcing them to close for months on end.
During good times, it can be very common
for people to do very well with one or maybe two stocks
and end up with most of their money
focused in only a couple of different companies.
Even if they start out with lots of different stocks,
it can almost seem silly to put all your money
into other things when one stock outperforms all the others.
Let's use some of my favorite stocks as an example.
Say, you have a thousand dollars to invest.
Now, you could put the entire 1K into Tesla
with the hopes of it going to the Moon,
but Tesla gets hit the hardest in a market crash.
It won't be good news for your money.
Whereas, investing $250 into Tesla,
250 into McDonald's, 250 into Square,
and 250 into Enphase would be a great diversification,
as you're invested in multiple different industries.
That's also why index funds are so popular,
as they spread your investments
over lots and lots of different stocks.
If you don't currently have an easy way to invest
with low fees, then I recommend checking out public.com,
if you're in the USA.
And, they are currently given away a free stock
worth all the way up to $1000.
I'll drop the link in the description.
Also, Freetrade is a great option,
if you're in the UK,
and they're giving away a free stock
worth up to 200 pounds with a link in the description.
You may have heard me mention these apps before,
but honestly, they are so easy to use,
and the signup bonuses are just so good,
it makes sense to take advantage of them.
Number two, the awakening phase.
I like to call it this because everyone
gets rudely awakened to the truth,
and only the ones that know how to navigate it
will be able to hold their nerve and make some real money.
This is kind of like when a married couple
finds out about an affair.
It brings that whole world crashing down.
What I'm really trying to get at is
the stock market just comes tumbling down
and it's next to impossible to be unaffected.
Even my son knew something was happening back in 2008,
and he was only 10 years old at the time.
The number of customers in my stores halved overnight.
And, even when they did come in, they didn't spend anything.
On the bright side, I had lots of products which I owned
in my warehouse, and it was absolutely full.
It was like a safety blanket.
But, this wasn't the case for everyone,
as even if they had products to sell,
they had to get rid of them fast
to pay their rapidly growing credit bills and rents.
But, why am I mentioning this?
Well, in 2008, I saw dollar stores opening up everywhere.
It was the perfect mixture of demand for cheap goods
and supply of products from failing businesses.
Because of this, dollar stores are often unsustainable,
as they're requiring stock from struggling businesses
desperate for that cash,
and then passing these savings onto their customers.
It's important to notice,
as the stock market goes through cycles,
and another market crash is very likely at some point.
But, that's all right, as there is money to be made
in all the madness.
Even if you manage to predict all the signs of a crash
and prepare correctly, this is why you are really tested.
It's more about human psychology,
as most people's initial reaction is to sell off
all their investments and cut their losses.
But, fear is the path to the dark side, young Jedi.
Fear leads to anger, anger leads to hate,
and hate leads to suffering.
Honestly, Master Yoda couldn't be more correct.
The people that give in and sell their investments
are usually the ones that just think the stock market
is not for them, or the game is just rigged.
If you believe in your investments
then you have to hold firm.
I like to remember the wise words of Gandalf,
"You will not sell."
Well, that's the way I like to remember it.
A study by Fidelity actually found
that if you invested $10,000
between the 1st of January, 1980
and the 31st of March, 2020,
and if you kept all your money invested,
you would have over $697,000.
But, if you decided to sell you investments,
and ended up missing the five best trading days,
then you'd only have $432,000.
The crazy thing is that missing 50 of the best trading days
brings you all the way down to $48,000.
So, you might think you're being smart by timing the market,
but in the long run,
you're probably only going to hurt your own profits.
But, there is a lot more to it than just holding firm
if you believe in your stocks long term.
In 2008, I saw what the dollar stores were doing,
and instead of seeing a competitor, I saw an opportunity.
If they could buy things for bargain prices,
then it must mean there were amazing deals available.
So, I went out hunting.
I went on a bit of a buying spree
over the next couple of years,
and acquired lots of different assets,
including stocks and even entire businesses.
I knew that I'd be unable to time
the exact bottom of the market,
so I invested every week.
This is called dollar cost averaging.
Cash is really king.
If you have it, then you can snap up
some amazing investments during this time.
The bottom line here is, that while some choose
to panic sell and lose all their money,
others choose to double down and buy the dip,
which if done correctly can make you a fortune.
Buy the dip, baby!
I feel I have to mention that some investors
also like to short stocks,
which is basically betting that a stock will go down.
It's not something I personally do.
However, people like Michael Barry
have been very successful with this strategy.
If you want to know more about this,
then let me know in the comments.
I also recommend "The Big Short",
if you feel like watching an entertaining
and informative film.
Number three, the resurgence phase.
After weathering the storm, we get to the resurgence phase,
and this usually pushes above and beyond
the last market highs.
Think of this like a married couple renewing their vows.
They come back even stronger than before.
I noticed that four years after the 2008 crisis happened,
just after the London Olympics, things started to improve.
Businesses were hiring,
and money was a bit easier to come by.
But, even though people started have cash again,
the mentality of not spending carried through for a while.
So, it was another four years really
until everything was back to normal.
I've experienced a lot of crashes.
I'm talking Black Monday, the dot.com bubble,
the 2008 financial crisis,
and of course, the 2020 pandemic.
One of the key lessons I took from all of this
was that a bull market almost always follows a bear market,
and that the seeds of your fortune are very often sewn
in times of crisis and uncertainty.
As long as you are able to handle your level of risk
and you're buying into the stock market consistently
with a diversified portfolio,
then you stand a much better chance than most
of making some real money.
So, I'm gonna leave the next video right up here,
but don't click on it just yet.
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