How to Prepare for Stock Market Crash?

๐Ÿ“‰The S&P 500 $SPX500 is ๐™™๐™ค๐™ฌ๐™ฃ ๐™—๐™ฎ ๐Ÿญ% ๐™›๐™ง๐™ค๐™ข ๐˜ผ๐™๐™ƒ and for some reason, people are panicking about it. A correction is a 10% drop while a crash is a 20% drop. We are far from a correction or a crash but sooner or later they will come and it is important to know how to prepare ourselves against them.

๐ŸŽฒ Nobody knows what the market will do today, next week or next month. It is ๐™ž๐™ข๐™ฅ๐™ค๐™จ๐™จ๐™ž๐™—๐™ก๐™š ๐™ฉ๐™ค ๐™ฅ๐™ง๐™š๐™™๐™ž๐™˜๐™ฉ ๐™ฉ๐™๐™š ๐™จ๐™ฉ๐™ค๐™˜๐™  ๐™ข๐™–๐™ง๐™ ๐™š๐™ฉ ๐™ค๐™ง ๐™ฉ๐™ค ๐™ฉ๐™ž๐™ข๐™š ๐™ž๐™ฉ. But we can always look at different scenarios of what may cause a crash. There's, however, always the possibility that something we didn't predict comes and crashes the market. For example, a pandemic, a war or an alien invasion.

๐Ÿฆ The main reason why stock prices are so high today is because of ๐™Œ๐™€ ๐™›๐™ง๐™ค๐™ข ๐™ฉ๐™๐™š ๐™๐™š๐™™๐™š๐™ง๐™–๐™ก ๐™๐™š๐™จ๐™š๐™ง๐™ซ๐™š ๐™Ž๐™ฎ๐™จ๐™ฉ๐™š๐™ข. If eventually, we have higher inflation, the Fed will have no choice but to raise interest rates. So, they might be the reason for the crash.

โ˜Ž๏ธ Another possible cause of a crash might be ๐™–๐™ฃ๐™ฉ๐™ž๐™ฉ๐™ง๐™ช๐™จ๐™ฉ ๐™ฅ๐™ง๐™ค๐™—๐™š๐™จ ๐™–๐™ฃ๐™™ ๐™ง๐™š๐™œ๐™ช๐™ก๐™–๐™ฉ๐™ž๐™ค๐™ฃ๐™จ on the big tech. Apple $AAPL , Microsoft, Facebook, Google and Amazon are 22% of the S&P 500 today. The bubble is only in a few stocks.

๐ŸŽฐ This stock market bubble has led to much ๐™จ๐™ฅ๐™š๐™˜๐™ช๐™ก๐™–๐™ฉ๐™ž๐™ค๐™ฃ. For example, we can see a high correlation between Tesla $TSLA and Bitcoin $BTC . The problem with speculators is that as soon as they see a 1% drop, they are scared and they start selling, causing an actual drop.

๐Ÿ’ธ It is important to have ๐™ก๐™ค๐™ฌ ๐™˜๐™ค๐™ง๐™ง๐™š๐™ก๐™–๐™ฉ๐™ž๐™ค๐™ฃ ๐™ฌ๐™ž๐™ฉ๐™ ๐™ฉ๐™๐™š ๐™ข๐™–๐™ง๐™ ๐™š๐™ฉ and avoid stocks with high institutional ownership. Diversifying in other asset classes such as cash, bonds and gold $GOLD can be dangerous, especially with cash and bonds as the yields are lower than inflation. I have some cash and cash equivalents in my portfolio but that's only temporary after the GameStop $$GME profits and I'll be using them to buy stocks.

๐Ÿญ Best way to prepare for a crash is to ๐™›๐™ค๐™˜๐™ช๐™จ ๐™ค๐™ฃ ๐™›๐™ช๐™ฃ๐™™๐™–๐™ข๐™š๐™ฃ๐™ฉ๐™–๐™ก๐™จ. You can never go wrong on fundamentals. What investors expect over the long-term when investing in a company is cash flow. Even if the stock market is down 90% and we have a 20 year bear market, if you hold a great company, you have nothing to worry about. The more it crashes, the more you buy.

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