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Sharemarket crash survival guide

Shares are being trashed, again. The temptation is to sell everything and run for the hills. Instead, take a chill pill and consider The Motley Fool’s patented sharemarket survival guide.

Down down, shares are going down.

After weeks of worrying about European sovereign debt woes, focus has again turned back to the U.S. and its own debt crisis.

In the U.S, the S&P 500 has posted its worst losing streak in 2 months.

Over the last 3 weeks, our own S&P/ASX 200 index has fallen almost 7 per cent in the last 3 weeks. Some shares have fared even worse…

Company % Share Price Fall Oct 28 2011 to Nov 21 2011
Australia & New Zealand Banking Group (ASX:ANZ) (10.6)
National Australia Bank (ASX:NAB) (10.7)
Iluka Resources Ltd. (ASX:ILU) (11.3)
Incitec Pivot Limited (ASX:IPL) (12.5)
Lend Lease Group (ASX:LLC) (11.2)
Mesoblast Limited (ASX:MSB) (14.1)
David Jones Ltd. (ASX:DJS) (13.1)
BlueScope Steel (ASX:BSL) (29.5)
White Energy (ASX:WEC) (72.4)

With the exception of White Energy, these are all big companies. It has been a tough time for investors.

So what are the keys to surviving market downturns? Here are some suggestions:

1. Don’t get absorbed in despair and panic. Ignore the violent emotional swings, and instead simply maintain a degree of detachment with regard to the whole business.

2. Be a regular saver and investor. That way, a market downturn becomes nothing more than a buying opportunity.

3. Reflect that Anne Scheiber, the U.S. lawyer who invested $5,000 in 1944 and died in the mid-1990s worth over $20 million, never sold a share and invested only in common, easily understandable companies. To her, we must presume, market fluctuations were an irrelevancy.

4. Finally, stop buying the newspapers, don’t watch the TV and go away on holiday. In short, switch off the market. Life’s too short for all that hullabaloo.

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As our Investment Analyst Dean Morel said just a couple of weeks ago…

“When bearish volatility, caused by emotions and a lack of reason, leads humans to herd, sharemarkets become irrational and oversold. That irrationality allows investors who are able to control their emotions and act in a calm, balanced manner, to take advantage of the many opportunities the market throws up.

There is no need to make big decisions. You don’t  need to be fully invested in, or totally out of the market. Gradually building positions in the best companies while maintaining a cash cushion will make investing easier and less stressful.”

Stock market falls are like the seasons of the year. They are a natural part of the investment landscape, they are normal and can even be very healthy.

This latest crisis, like all crises before, will pass. And those that survive will prosper.

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