Watch Out! Common Mistakes in a Stock Market Crash

Economy reopens, and the pandemic worsens. Will that accelerate the stock market crash? We don’t know. But what we can do is to be alert and avoid the following common mistakes in a stock market crash:

Fear

There are two types of fear that are commonly seen in a falling market: 1. Fear of missing out opportunities to make money; and 2. Fear of losing money. Either one you must be careful.

There are huge opportunities in a falling market, but the market is still uncertain. Be clear on your investment goals before making any investment decision – buying or selling a stock due to fear is obviously not a good reason.

Buy “Cheap” Stock

Buying a stock because it is cheap is like catching a falling knife. The phrase “Buy low, sell high” is often misinterpreted for: “If it is cheaper then buy it, and sell it when it is more expensive”. But cheap does not mean undervalued. Value isn’t the price you pay. It’s how much you get for how little you pay. Also, when a stock price falls, its trend and momentum direction may have changed.

Buy and Hold

You always have a reason when you buy a stock. What about in selling it? Blindly following “buy and hold” strategy is a bad idea. If the stock is growing, or it is performing well, there’s nothing wrong to hold it. But if its fundamental have changed, you may need to reinvestigate whether you should continue to hold it or replace it with something better.

Wait for the Bottom

If you believe a company is good, don't be afraid to buy at an all-time high. Play the long game and purchase stocks of businesses that you are confident in. It is always hard to guess where the bottom is.

Disclaimer: This article is provided for informational or educational purposes only and is not any form of individualized advice.

Reference:

1.     Daniel B. Kline, Avoid These Coronavirus Pandemic Stock Market Mistakes, www.fool.com

2.     Stock Market Crash | The Most Important Mistake You Will Make In A Falling Market, www.leadingtrader.com