Wow, now, that was a fantastic week! It was the biggest market drop since 2008. I'm so excited! And I've bought probably more shares this week than in the last 2 years. My favorite stocks: 25 times next year's earnings stocks with a low beta and highly predictable earnings. Like Mastercard and Microsoft for instance.
I really like it when the whole market goes down. It's the only time when you can buy without thinking too much. When a single stock drops a lot, you're never sure if something stinks. When the whole market goes down, you know that it's a panic and panics are your best friend when you're an investor.
As the current crisis will continue and take more proportions (I'm not sure about that, but that coronavirus will probably not disappear anytime soon), you'll read many people talking about their financial strategy. And you'll wonder if their strategy is good or wrong. Probably that you'll be influenced by many of them, because we all seek advice when we face a new situation.
Here's my thoughts:
1- First of all, at any time, you should only own stocks that you like and that are appropriate for any time (crisis or economic expansion). If a crisis exposes the weakness of your choices, you've missed something. You should continue to read books and blogs about investment. The time when you take a crap is an excellent moment to perfect your skills about that field of interest;
2- When the market goes up, it's time to sell some stocks (reduce your positions), not when it's down (except if you've found something better and cheaper);
3- You should always have some money left to take advantage of a sudden drop. That amount of money goes with your personality. If you're prudent, save 5-10% of your portfolio for a cash reserve. If you're more aggressive, be fully invested. For instance, my cash reserve was about 15% a couple of weeks ago. It's now about 7,5%;
4- When a sudden drop happens like it happened this week, you'll be happy only if you have some money left. If you don't have any money left, you won't be able to buy some stocks with a bargain. It doesn't mean that you're not a good investor, it only means that this time, you'll be unhappy while I'm happy. It's gonna be your turn later. Because nobody is happy at the same time on the stock market.