How Do You Stay Confident in a Market Crash?

If you’ve been in the stock market a long time — and I’ve been investing for 25 years — you’ve already been through some sharp drops. I definitely remember the 2000 swan dive, and the plunge of 2020. And many of us recall the financial crisis of 2007-09. Now we have runaway inflation and a war in the Ukraine. And the market has taken some ugly hits in 2022.

So how do we stay confident when many people are afraid of the stock market? Here are some tips.

Image source: Getty Images.

Focus on the long term

The good thing about this bear market, as far as I’m concerned, is that it’s a macro event. That means it’s affecting the entire stock market. What can be super scary is when the only stock that’s dropping in the market is the one you own.

When it’s a bear market and the vast majority of stocks are dropping, I actually have less fear. That’s because market drops have happened many times in the past. And they will happen many times in the future, too. But the important thing to remember is that after every one of them, there’s a recovery. And the stock market keeps going up and to the right over time.

Our chart provider doesn’t go back 100 years. If it did, the long-term direction of the stock market would be even more obvious. So have no fear. We’ve always recovered from major drops in the past, and we’ll recover from this one, too.

SPY data by YCharts.

Remember, over time an ugly fall (like 2022) becomes a little squiggle on the chart.

Track your returns over time

I track my portfolio at Yahoo (which is free), and I also create watch lists of stocks I might want to buy in the future. I follow over 100 stocks that way. That’s an easy way to judge my performance. It actually can be a little aggravating, as sometimes stocks in my hypothetical ports outperform stocks in my real-money ports. Overall, however, this gives me confidence in my stock-picking strategies.

One thing that gives me a huge amount of confidence is that I know how I’m doing vis-a-vis other investors. At the Motley Fool, we invite people to make stock calls and track their performance versus the S&P 500. It’s called Motley Fool CAPS. I highly recommend that you use this tool. It’s free, and you can see how your stock picks are performing against the market over time.

I’ve been playing CAPS since 2007, which gives me a big advantage over recent players. Why is that? It’s because of the miracle of compound returns. For instance, I made a bullish call on Apple (NASDAQ: AAPL) in CAPS in 2007, and I’m still holding it. If you bought Apple stock back in 2007, you know that was a good buy.

AAPL data by YCharts.

Short-term volatility says little about your investment abilities

Overall, I’m in the top 2% of investors playing Motley Fool CAPS. Six months ago, I was in the top 1%. This drop in performance — from the top 1% of players to the top 2% of players — reflects the bad news that 2022 has been for my stocks so far.

So has this recent bad news hurt my confidence? No. While my returns have been ugly this year, and I’m doing twice as bad as the market, I’m able to put this in long-term perspective. After all, being in the top 2% of investors is not bad at all.

Imagine, for instance, a crypto millionaire who is down 60% in 2022. Her net worth has dropped from $10 million to $4 million. Should she panic and say, “I’ve lost $6 million!” Or does she take 2022 in stride, as market volatility?

If you’re a newbie, a 60% drop might terrify you. But I’ve been doing this for a long time, and I’m used to the short-term volatility of my high-risk stocks. I’m actively buying in this market. I wish I had more cash so I could buy more.

I’m buying because the highly risky stocks I love to buy are cheap on an historical basis. The market has no appetite for risk right now. Multiples are getting slashed. The bears are on a rampage. And all this fear has been priced in. So I love the long-term opportunities that I see.

What if you’re not confident?

If you’re not confident in your stock-picking abilities, you might want to buy an index fund that tracks the S&P 500. Because the American stock market, over time, is an amazing (and highly profitable) investment vehicle.

There is no perfection. You will have failures. But as you go through this process of researching stocks and trying your best, you’ll acquire more and more confidence (and net worth) over time.

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Taylor Carmichael has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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