ABstocks: Learn Stock Market

Downturns and recessions happen in the stock market all the time. And this could have a negative effect on you if you have the underlying stock or be positive if you want to go bargain hunting  and pickup stocks on the cheap.

Usually the stock markets have 3-4 downturns during a given year (about 10-25% drop under 14 days) and a recession (around 25%-50% drop) every 2-4 years.

 

 

These downturns/recessions are usually unavoidable, since they happen so fast that your stock holding will be in red (negative) that you can’t sell and predict the next day’s outcome so it will keep going down.

 

 

The best way to protect yourself from these downturns/recessions and to survive if you are in one, is:

1. Diversification (hold different sectors, different companies, different regions)

2. Hold some short positions

3. Use ETFs (Exchange-Traded Fund), so when one company goes belly up, your holding will not get affected much. An ETF is a basket of different stocks,  holding of few similar companies ie. gold companies ETF etc… . ETFs have become popular past few years.

4. Don’t hold a stock for a long time that will drag you to a recession (some even believe that buy and hold is dead)

5. When in a recession, have some cash around (always have cash around and don’t put all your money in stock market) and when the market find its new lows and stabilizes do day trading or buy even at lower prices so you can start recovering your loses of other stock holdings faster (averaging out).