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3 things I’ve learned from the 2020 stock market crash

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What has the 2020 stock market crash taught me? Actually not a lot that’s new, as I’m old enough to have lived and invested through a few downturns. Nothing as steep as this one, mind. But it’s driven home quite a few things that I do need to keep being reminded of.

I think there’s plenty to learn this year, for everyone from beginners to experienced investors. So here are three things I have seared into my mind by the events of 2020.

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Nobody expects a stock market crash

I was talking to someone thinking of getting into shares recently. I did my usual spiel about investing for the long term, and how the stock market beats other forms of investing hands down.

But there might be another stock market crash,” he said. No, not might. Will. For sure. They’re inevitable, though thankfully usually quite far apart. But nobody seems to expect them, and almost everyone is surprised when we get one. “Well, smarty pants, you didn’t expect the Covid-19 pandemic, did you?” I might get thrown back at me.

No, I didn’t. But that’s missing the point. Every stock market crash starts with something unexpected. But unexpected things happen all the time. And even if we can’t know what the next unexpected thing is going to be, we do know we’re going to get them.

We can always benefit from panic reactions

I’ve also been reminded of one seemingly inevitable thing. Whenever there’s bad news, the market will overreact. It often happens when companies report disappointing results. Investors will sell out, and the share price falls. But so many times, it hits a deep low and then starts to recover. Yet when we have a general stock market crash, we tend to see it to excess. 

Just look at the FTSE 100 chart this year. In a little over month from the pandemic’s arrival, the index had slumped 35%. But then markets picked up and and the Footsie hasn’t been that low since. So I ask myself, what was so bad for the stock market in March that was so much better in June or July? I don’t see anything.

So, for me, a stock market crash is clearly a great investing opportunity. And it can pay to buy in the early days.

Invest for a crash, all the time

What’s the best way to invest to minimise stock market crash losses? A lot of people have been asking that question in 2020. But that’s too late. At least, for this crash. It’s no good selling stocks that have already crashed and buying safer ones after they’ve risen.

And what would we do later, when the crash is over? Sell our defensive stocks, which will very likely have fallen back by then? And then buy back into the ones we sold, almost certainly at a recovering higher price? That seems like a guaranteed way to lose money to me.

My approach to investing for safety is to buy into the very best companies I can find. I mostly like ones offering essential goods and services, and with little or no debt. But I think the time to buy those is all the time. Not after a stock market crash has arrived.

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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