3 Things You Shouldn’t Do if the Stock Market Crashes

Investors will regret it if they panic sell in a stock market crash or ignore value in top stocks like Royal Bank of Canada (TSX:RY).

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The S&P/TSX Composite Index shed 131 points on Tuesday, September 5. Some of the worst-performing sectors included battery metals, base metals, and utilities. A recent survey by Maru Public Opinion found that only 33% of Canadian respondents said they believed the national economic outlook would improve over the next two months. That was down from 38% in July and 41% in May. Poor sentiment has been vindicated, in part, by a gross domestic product contraction of 0.2% in the second quarter. This fell short of analyst expectations. The environment has some investors worried about the prospect of a stock market crash.

Today, I want to discuss three things that investors should not do in the event of a stock market crash. Let’s jump in!

Panic sell!

The last time investors experienced a violent market crash was when the severity of the COVID-19 outbreak became apparent in February and March of 2020. In late February and early March, the TSX Index and its global peers suffered significant losses as people around the world digested the possibility of a widespread economic shutdown.

During these stretches, it is crucial for investors to control their emotions and refrain from panic selling. When you succumb to these fears, all you accomplish is to realize the sharp losses that you have sustained during the market crash. Worse yet, you avoid the potential fruits of a rebound.

goeasy (TSX:GSY) is a great example of a TSX stock that was throttled during the March 2020 stock market crash. This Mississauga-based company provides non-prime leasing and lending services under the easyhome, easyfinancial, and LendCare brands to consumers in Canada. Shares of goeasy dropped as low as $21.08 per share during the 2020 stock market crash. The stock reached a high of $100.48 in December 2020, less than a year removed from goeasy’s 52-week low.

Leave the stock market

Some investors will transition from panic to all-out despair in the throes of a stock market crash. This can inspire some to exit from the stock market altogether. That means selling all your positions, regardless of performance. Like panic selling, investors who pursue this strategy will only seriously harm their pocketbooks in the near term.

Instead of contemplating an exit from the stock market, investors who are feeling discouraged should look at the performance of a blue-chip stock like Royal Bank (TSX:RY) since the turn of the century. The stock of the country’s largest financial institution was worth less than $15 per share at points in January 2000. This bank stock hit a 52-week high of $140.18 over the past year. Its shares have dropped 4.6% so far in 2023, settling at $122.02 on Tuesday, September 5.

Ignore value

A stock market crash is a terrible time to sell your positions and realize those steep losses. Indeed, it can be a phenomenal opportunity for investors to snatch up top equities at terrific discounts.

Air Canada (TSX:AC) saw its business threatened during the Great Recession. This sour mood translated to a poor performance on the stock market, and shares of Canada’s top airliner plunged below the $1 mark in the first half of 2012. By January 2020, Air Canada’s business had reached new heights, and its stock was trading at over $50 a share.

The COVID-19 pandemic presented a new and harrowing challenge for Air Canada and the broader airline industry. Fortunately, the airliner learned from its mistakes and had filled its coffers in preparation for a catastrophic event. Now, in 2023, travel demand is soaring, and Air Canada has soared back to profitability. During the March 2020 market crash, Air Canada stock dropped as low as $12.15. Its shares are trading at $22.57 as of close on September 5.

Shares of Air Canada currently possess a favourable price-to-earnings ratio of 16. That means the top airliner is a value pick even before any significant downturn. When others are fearful in a stock market crash, savvy investors are looking for opportunities.

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 Ambrose O'Callaghan has positions in Goeasy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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