In recent months, stocks around the world have been moving in an upward swing at an unprecedented level. This has raised a lot of apprehension among market analysts who are predicting that another global stock market crisis might be around the corner. From the New York Stock Exchange, London Stock Exchange, and markets in Asia, Europe, and Southern Africa, the rates at which stock prices are appreciating are alarming. If this trend continues unabated, it might result in a major crash of the stock markets with its nightmarish instant loss of capitalization of listed companies.
WHAT IS A STOCK EXCHANGE CRASH?
A stock exchange crash results in a sudden and unexpected fall in the value of shares. Stock market crashes can be triggered by major natural disasters, market forces, economic turmoil, or the breakdown of a speculative asset bubble. Another factor that usually worsens a market crash is public panic especially investors who try to sell off their stocks to avoid loss thereby further driving down the prices due to demand and supply imbalance.
When a crash occurs in the money markets, it brings with it agony to many investors whose savings get virtually wiped off overnight. However, this situation also presents a rare opportunity for new investors looking for low-limit investments.
As a new investor, there is no perfect time to start investing, even though there are periods when some stocks have more promising prospects than others. Buying during a stock market crash gives you the opportunity of purchasing stocks of high-value corporations at giveaway prices. However, you must be careful in selecting the stocks to invest in and have a strategy for managing your stocks in the future when the prices of stocks rebound.
HOW TO USE THIS TO YOUR ADVANTAGE
In selecting companies whose stocks you want to buy during market crashes, pick companies with a track record of being safe investments. The companies must still have a large capital base to survive after the crash and can maintain their everyday operations. Buying stocks of these types of companies is a discount for you as you get to pay less for high-value stocks.
You must plan to resist dumping the stocks for the next four to five years even when the value of the stocks takes a dive sometimes as this is necessary for you to reap the full dividend of the stocks when they appreciate further. Your target should be to make gains in the long run.
Lastly, the time will come when the price of the stocks will rise above what is rationally possible. Stocks that were bought for a pittance will become overpriced as a result of different factors. When this happens, you need to be courageous enough to offload your investments and enjoy the profits. Failure to act quickly might lead to a loss if the markets spiral into a crash. After the collision, you can also buy stocks at a discount and wait until they appreciate before you sell them off.