Dealing with major crashes:

Dealing with major crashes:

At the beginning of a crash if you are still standing profited and if you sense that the crash is getting severe, you could book profit and wait and watch. However as time pass by this possibility will diminish and you can do nothing but watch and keep your cool.
However after you passed the stage mentioned above, I know of no steps which can be taken during a major 'free falling' and continuous crash; similar to what we witnessed in May - June 2006. Selling for loss may be an option early during the crash. However as liquidity dries up you will come across situations that you cant even successfully place a sell order.

Unable to place a sell order:

There will be times during major crashes that you cant even sell your shares. This is primarily because your investment is not in large-caps or so called blue-chip shares which are unlikely to have a liquidity problem. Hence understand that it is always safe with fundamentally strong companies. This is not a major concern if your portfolio has been a very thoughtful one. Eventually your share selections should rebound and recover.

It is better to factor in long-term volatilities, major crashes, corrections and stick to principles than getting caught feeling helpless later. This is where you need nerve, patience, and an ability not to panic.

Principles; Before getting caught:

Never invest all your savings in equities. Limit it to around 30 - 50 % of your savings.
Invest in fundamentally strong companies.
Plan your investment for long term. At least 3 - 5 years.
Always diversify and take positions in different sectors and in the best businesses in those sectors.
Keep researching and watching outlook of various sectors, business news whether or not your trading.
Understand that rise and fall is common in the markets.


After you are caught in it:

Show patience - this too shall pass. Markets will eventually recover.
Often markets move as per sentiments not fundamentals. Understand that suddenly, all businesses haven't lost their performance and profitability.
Believe in the market and the long term returns.
Selling for loss; however try to avoid it.