The Motley Fool

Do This If the Market Crashes Below 52-Week Lows

Image source: Getty Images

The markets pulled back viciously on the first day of April following dire U.S. infection projections. The TSX Index pulled back 3.8% and the Dow tanked 4.5%. That wasn’t exactly a good start to the second quarter, to say the least, which is likely to be a brutal one for businesses across the globe.

With ugly numbers looming, investors should be prepared for what could be another wave of capitulation. There will undoubtedly be many negative surprises as companies pull the curtain on earnings, with updated guidance to account for the devastating impact of COVID-19.

Off-the-charts volatility the new norm through Q2

Investors should be ready for the new norm: off-the-charts volatility, as the insidious coronavirus continues spreading at a rampant rate.

Eventually, we will get around the curve, but it’s a foolish (that’s a lower-case “f”) endeavour to try and trade the coronavirus pandemic.

Rather, investors should stay focused on the long game and resist the urge to make rash decisions, such as fear-induced selling or greed-induced buying on short-term market moves, like the three-day rally enjoyed in late March.

While you should be greedy while others are fearful, as Warren Buffett suggests, it’s possible to be too greedy. Warren Buffett is sitting on billions of dollars worth of cash, a luxury that you probably don’t have. As such, it’s vital to ensure you’ve got enough cash to buy incrementally on the way down over the next few months if it turns out we’re not yet at the bottom.

Moreover, your emergency fund, which is to be used for emergencies only, should be off-limits and should not be used to time a bottom. And please don’t consider investing on a margin at a time like this. As Warren Buffett put it, “It is crazy to borrow money on securities…  it’s insane to risk what you have for something you don’t need.”

5 Stocks Under $49 (FREE REPORT)

Click here to gain access!

Keep liquid — and keep nibbling at stocks on the way down

Liquidity dried up last month. Thus, you’re going to need to ensure you’re not put in a position where you’ll be forced to sell your existing stocks at a steep loss. If an emergency happens, there are no substitutes for cold, hard cash, as we found out in March.

If you maintain liquidity, you’ll be able to seize the opportunities in this market. But as an individual investor, you’ll need to pick your spots very carefully and not only invest what you know, but also invest in what you can value with some degree of certainty at a time where uncertainties couldn’t be greater.

Consider shares of a wonderful business like Fortis, which stands to be less impacted by the coronavirus (COVID-19) crisis relative to most consumer-facing firms out there.

The pandemic isn’t just devastating on its own, but it’s also going to leave a nasty recession behind, so investors are going to need to be ready to ride out the post-pandemic slowdown. Fortis has outperformed in past recessions and it will continue to do so in future ones, as it continues providing essential services to its communities.

If you’re rattled, keep nibbling at Fortis gradually and systematically over the coming months while maintaining sufficient liquidity. That way, you’ll profoundly increase your chances of this market crash ahead of most other investors on the Street.

Stay hungry. Stay Foolish.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.