The memory of the different crashes in the equity markets is still present in the minds of many investors, especially the older ones. They still have in their memory all the savings that these took stock movements so violent and depreciating all international equity markets. To the point that there are already several gurus of the financial markets that are coming announcing an event of these characteristics for the next few months, or maybe years.
If an event of this importance develops, be on your guard quickly because it will be the worst possible scenario. Being able to lose much more money than you can initially imagine. Although it may generate business opportunities due to the large amount of financial assets where you can invest your money at the moment. Through new financial products that contemplate all possible scenarios.
A crash on the stock market is something very serious that you cannot take lightly, much less with spontaneous performances that lead nowhere. It will be necessary that you have an action plan programmed in case this movement develops over the next few months. Above all to protect your monetary contributions through stronger and faster actions. Only goat that you implement an exceptional investment strategy.
Historical background of the stock market crash
If there has been a crash in the equity markets par excellence, it is none other than 29. The consequences are in the history and economics books, and why not, in some movies that reflect this historical event. As well, the crack of 29 It took place on October 24, 1929, and was known as Black Thursday, being the trigger for what would be the Great Depression.
Stock market shares plummeted to levels unknown until then. Not a few were the investors who were totally ruined during those fateful days for everyone. Where speculators sold all the securities they had in their investment portfolios. Such was the panic in the financial markets that growth in sales lowered the value of shares.
All investors, large and small, began to dump their positions with a very clear goal: to lose as little money as possible. Its effects were overwhelming due to its special gravity. Many savers lost more than 80% of their invested capital in a bag. And others even worse, they simply went bankrupt. Poverty was installed in much of the society of the United States, with effects that we all know by now.
Other cracks through history
This financial meltdown has been recorded in many history books. It has not been the only crash on the stock market, but later others have developed, although with much less intensity. It is especially noteworthy the crack of 87, popularly known as Black Monday. It was one of the worst sessions in history for the North American stock market, which collapsed by more than 500 points and its selective benchmark index depreciated by more than 22%. Something unheard of at the time that could happen to the financial markets. Not in vain did it shake the interests of thousands and thousands of investors. Its causes include a very high trade deficit, high inflation, a war situation in the Persian Gulf, with its problems for the supply of oil, and finally many tensions in the real estate market.
This perfect storm developed in the stock market had another aftershock in 2008, of which we are now facing its consequences. Although more than anything we are referring more than anything to the world stock market crisis of October this year. With a historic fall in the stock prices of practically all the world's stock exchanges, practically without exceptions. The falls represented brutal declines, over 10% in the same trading session or in several.
What could happen now?
So far a small review of what these movements have been through the last hundred years. But what would happen if a crack developed right now, or very soon? Well, I would also have devastating effects on investors' interests, and among them yours. For the time being, the collapse in the share price could exceed the 20% barrier. That means a lot, but a lot of money in your positions in equities.
It would affect all stock markets, and without exception. Boosted in this case by the greater globalization of the economy, and by extension of the stock markets. There would be no truce possible and with all certainty that you would lose more than in any occasion. Even to show all your contributions. It is true that there are now greater defense mechanisms, but they could do little in this scenario so little desired by all the agents that act on the stock market.
Of all the few, few tools you will be able to use if this violent scenario lands for the prices of companies around the world. Only with some prevention will you be able to cushion its effects. And in this sense the lines of actions that you must conform to protect the savings of a lifetime are directed.
Its main effects on money
If a crash like the previous ones happens, things will go badly for you if you have open positions in equities. Not in vain, you will leave yourself on the road more than on any other occasion. Even at the risk of really ruining you. As a result of these abrupt movements, you will have no choice but to make massive sales in the financial markets. And always at market price, which will be very low, almost given away from today's perspective.
They will make you lose a large part of the invested capital, with depreciations that can dangerously approach 50%. However, you can reduce it if you act with some diligence when the stock market crash develops. But the truth is that the self-defense markets that you will have in those moments are minimal. There will be so many sell orders that are generated in the financial markets that it will be very difficult for them to be executed, much less at the prices you want to formalize the operation in the equity markets.
If you have not sold in the previous days you will have much more difficulty doing it from these exceptional moments. Not surprisingly, you have to put yourself in the worst case scenario and assume that things are going to go very badly for you on the stock market. Without exclusions because the cracks affect all series of values, indices and sectors of the stock market. You have no escape if one of these situations develops so undesirable for your interests.
What should you do?
At the precise moment in which a crack originates, whatever its nature, the most imperative thing will be to get rid of your open positions as soon as possible, without delay. It will be the only way to save a part of your savings. Given this, you will have no choice but to apply a series of actions that will be necessary in these cases. They are as follows.
- Try by all means that the shock wave does not reach you fully. This means that you will have to cut the falls the first day. And in this way avoid that the cuts focus even more on the next sessions of equities.
- Don't obsess over sell your shares at a price set by you. But on the contrary, you must formalize it under a market price. It is the only possibility for the order to be executed on the sale of the shares.
- Don't try to wait to see how financial markets evolve. It will be a serious mistake that you can regret after a few days due to the low liquidity of the stock markets.
- As a solution to close positions in the financial markets, you can use a little trick if you have a lot of money invested. It is none other than to perform partial sales to save at least part of your invested assets.
- In these special situations, no possible strategy is worth, but you have to have to make very radical decisions and in a short space of time. Not surprisingly, the minutes play against you.
- You can't set goals for yourself either since you are at the expense of the equity markets, and you have little margin to operate in your investments.
- Despite the low prices with which the securities were listed don't try to buy their shares. At least in the short term. With all certainty, you could worsen your situation, reaching levels that are practically unacceptable on your part.
Can you see a crack?
It is very difficult to anticipate events. Not even the great experts have succeeded. You can only interpret that something serious is happening in equities. It is not worth it, therefore, to be positioned in their values. The only clue comes from the evolution of the economy, especially when it generates serious imbalances in some of its main indicators or parameters.
A crack is usually preceded by some intensity downward movements. They can warn of what may happen in the coming months, or even weeks.
In any case, in the formation of these exceptional movements, values and indices can leave half their value by the wayside. Until reach levels never seen During the last years. It is, in short, the worst thing that can happen to you on the stock market. You will not have many mechanisms to safeguard your savings. And always in a limited way. Finally, do not forget that you will always be exposed to the financial markets, without being able to do much.