5 Things To Do During Stock Market Crash in 2024 (Now & Then)

Feeling lost and not sure what to do during a market downturn?

During a bear market, the market decline quickly and it can evaporate billions of dollars in the matters of days, but some investors become richer after the stock market crash.

Everyone who have experience the previous great recession remembers their portfolio halved as there is a sudden drop in stock prices, those who experience it first time are shock in demise.

Companies retrench good employees because they couldn’t afford to pay their salaries.
Financial sector was paralyzed in fear watching the stock market crash like a hawk.
Government officials trying desperately to calm the public as the Country’s GDP falls into the negative region.

But it is actually a great opportunity for you as an investor.

Ultimate Stock Market Crash Survival Guide

Importance Of Knowing What To Do During Market Crash

Market conditions is volatile, many investors have experienced market losses back in when the market crashes during the Covid-19 pandemic and the S&P 500 and Dow Jones Industrial Average total stock market index fall more than 18.11% in 2022, biggest drop since 2008 great recession.

You will never know when the next crash will come as market crash is a sudden event, sometimes it takes years to recover like 1929 stock market crash, sometimes it only take weeks. You’ll never know when the market bottomed or where the crash could lead.

Historically, it is impossible to try to time the market, however during a big market crash, it is the best opportunity to buy low and sell high.

Investments during a market crash is often profitable as the global stock markets go up when the market recovers.

Here are some things to do when stock market drop when you are investing in stocks.

Smart Things To When Stock Market Crash During Recession

As a stock market investor knowing how to invest money in the market as the market dips during a market downturn can help you build a strong investment portfolio as the market recovers back to a bull market.

Not only these things you do be can protect you from the impact of a stock market crash, but to profit from the recession itself.

1. Stay Rational

Stay rational sounds simple but it is actually easier said than done, this is especially hard when you become emotional as the stock prices decline and your portfolio drop in value.

Imagine the stock you just brought fall 50% in just 3 weeks.

Will you sell all your holdings and cut your losses?

Will you fear the stock prices will drop even more?

You can be the smartest guy on the planet, but if you don’t stay rational during a recession, you will be in for a painful ride.

The legendary value investor, Warren Buffett said this during one of his interview:

“To invest successfully does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework.”

In simple terms:

“Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential.”

You don’t need to be smart to do well in investing. You need to be able to stay rational for investing.

How do you stay rational?

For you to stay rational even as the stock market crash, you need to remember that:

Investing is to invest in the value of the company and not on the price of the company.

Value of the company is depending on the fundamentals of the company, such as the financial health, the growth potential and the business which the company represents.

The price of the company is determine by the fear and greed of the people, this cause the price of the company to fluctuates.

As long as the fundamental of the company is strong and it is not overvalued.

You are pretty safe.

2. Build Up An Emergency Fund

You can only be rational if you know your finance is all covered. Build up an emergency fund that is big enough to cover all your expenses can help you to stay rational especially during a stock market crash.

A good rule of the thumb on the size of the emergency fund will be 6 to 12 months of your household expenses.

If you are unsure on how much you are spending each month.

You should get started in creating your own home budget, this will help you in:

Identify where do you spend most of your money
Identify how much do you spend each month

Identify the amount of saving you can save each month.

Gaining clarity of your own personal finance can help know how much you’ll need for your emergency fund.

Emergency fund is one of the most important fund you should have at any period of time, and not only during the period of recession. This fund give you a piece of mind, so you may sleep like a baby in the night.

During a recession, many people will lose their job and the emergency fund can help you to brave through the tough times.

How to build up an emergency fund?

Building up the Emergency Fund takes time and dedication and here is a simple step guide to building yours:

Calculate your monthly household expenses.

Multiply the monthly expenses by 6 or 12 and the number will be your goal.
Create a separate high interest bank saving account and name it ‘Emergency Fund’.
Allocate 20% of your salary to this bank account you created.

You may take some time for you to reach that threshold for your emergency fund, but it will be worthwhile. I promise.

3. Don’t Panic Sell Your Stock At A Loss

“Stop! Don’t click that sell button!
Whoa! That was a close call!”

30% of investors who “Panic Sell” during the previous market crash never got back into the stock market.

Stock investment is about “Buy low, Sell high” and not the other way round.

But in reality, many investors “Buy high, Sell low” especially when the stock market is crashing.

Even professional investor are not spared, most professional mutual fund managers their stocks even at a loss during a stock market crash.

Well, it is not because you are smarter than the professional mutual fund managers. But these mutual fund managers are actually forced to sell them. Simply because they have no choice if they don’t want to get fired.

These action drive the price of the stock even lower than it should be.

Unlike retail investors like us, mutual fund managers are required to report their investment result every quarter. If they have more than 2 quarters with a negative return, most will be out of their job.

And to ensure they still keep their job. Even if they know the stock price for the company will raise 2, or even 10 times (10-Bagger) the price they purchase in the future. These mutual fund managers have no choice but to sell them off.

“During recession, Mutual fund managers invest so that they will not make a loss. We as retail investors on the other hand, invest so we may profit.”

Lesson Learn: Don’t panic sell your stock at a loss because that might be your greatest financial mistake this recession.

When should you sell?

Retail investors like us invest so that we may profit.

We only sell a stock for the following reasons:

Fundamentals of the company have changed.
The company is overvalued.
The company no longer have a moat.

Here are the words from Warren Buffett about when he will sell a stock:

“The only reason that I would sell something would be if I lost confidence in the business, or the management, or it became dramatically overpriced.”

4. Do Your Research

Every great investors is a good researcher who does his homework to research on amazing companies.

True investors do not gamble in the stock market. They take calculated risk when investing in the market.

Investors are people who view stocks as businesses.

Investors research on hundreds of companies to see which of the business that is a good buy, or a great buy.

During a recession, it will become obvious that which of the company are rotten apples, and which are diamond that are yet to be polished.

But before, you can identify them, you need to do your research.

How to do your research?

Research are usually done by reading the annual reports and using the follow financials publicly available to all investors:

Income Statement
Balance Sheet

Cash Flow

With these financial data available some of the common financial metrics are used to determine if the company is a good buy or a bad investment.

Some of the financial ratios used are:

PE: Price to Earning Ratio
PB: Price to Book Ratio
PS: Price to Sale Ratio

Current Ratio
Quick Ratio

Other metrics used are:

ROA: Return of Assets
ROE: Return on Equity
ROIC: Return on invested capital

These are just some of the most common metric used when researching on a company.

5. Load Up And Buy

Buy? Is that a typo error? The market is falling and everyone is rushing to sell their stocks and you ask me to buy?

Yes, Buy during a stock market crash!

Not just buy, but load up as much as possible when you find an great stock at an amazing price!

In fact, during a recession, it is the best time for you to buy stocks.

A recession is the time where everywhere you see are bargains, with huge red signs saying 20% OFF or Even 50% OFF.
A recession is the investor’s ‘Great Stock Sale’ of the decade.

Famous Quote from my favorite value investor, Warren Buffett says:

“Be fearful when others are greedy,
Be greedy when others are fearful.”

Such wisdom is what made Warren a legend in investing.

What to buy?

Like any Christmas sale, you don’t buy everything that is currently on sale. You only pick the best to buy. Those which is most valued. And with your research on the hundreds of stocks, you already have an rough idea on which of the stocks are the best business to buy.

Here are the steps:

Identify the best company you want to buy
Check if it is cheap and currently on sale

Click that ‘Buy Now’ button

Buying great company which is only placed “On Sale” is a rare opportunity that come every 10 years.(Just an approx.)

If the company you buy is a great company with strong moat, good financial health and purchased with a good margin of safety. The company you buy will raise in value when the economy recovers.

How to Prepare for a Stock Market Crash

When you are investing in the stock market, you need to be always prepare for a stock market crash. Here are some things you can consider doing:

Investing in the index fund for a diversify portfolio to prepare for the market volatility during market correction.
Rebalance of different asset class and have an asset allocation according to your risk tolerance.

Avoid using borrowed money to buy stocks and avoid using leverage for investing.
Avoid putting all eggs in one basket when investing in individual stocks.
Adopt a long-term investment strategy, be a long-term investor who can stay calm as the stock market decline.

Doing All These Will Help You Survive a Stock Market Crash As An Investor

Recession is almost unavoidable. Market crash is just part of the market cycle that will come sooner or later.

Market crash can be a bad news if you are ill prepared, but can also be one of the best opportunity for you to buy some of the best company, which otherwise will be too overvalued.

Fear and Greed are the two main emotions that controls the up and down of the prices of each stock, but it is the value of the company that we investors buy.

We as investors knows that investing comes with risk and reward. And by learning, we are able to minimize the risk and maximize the reward.

5 things to do during a stock market crash:

Stay Rational

Build Up An Emergency Fund
Don’t Panic Sell Your Stock At a Loss
Do your Research

Load Up and Buy

Do these 5 things during a recession will prevent you from losing millions and allow you to profit from the recession.

How to Invest During a Recession For Investors (Best Investment)

5 Warning Signs Of Stock Market Crash For 2024 & Beyond

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Antony C.

Founder & Financial Writer at Income Buddies | Website | Posts by Author

Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).