Lessons From The 2008 Stock Market Crash

The Stock Market Crash of 2008 left many investors in pain. Some people learnt the hard way but these takeaways could save your life.

There comes a time when the world seems to end. When everything goes dark and it seems like we would never recover from the calamity that has taken place. For the investor, this is the day of a stock market crash.

A stock market crash is typically very rare, but when it does happen, it spares nobody. It isn’t a respecter of age, class, or wealth. The 2008 stock market crash seems to have happened a long time ago, but if you too had been caught in that fire, you would probably still remember the gory details.

Just a little over a decade ago, the crash which was a dominoes effect that came with the Lehman Brothers declaring bankruptcy and the American International Group Inc. running out of cash, was responsible for the loss of 8.8 million jobs, $19.2 trillion losses in household wealth gone, amongst other evils – and it only took 18 months.

Many investors learned a lot from the financial crisis, but those lessons were probably too late and too disastrous. What is interesting is that while it seems like everybody lost, there were actually winners.

Companies like Walmart and Hasbro, amongst others, gained in the market that year. The point here is that stock market crashes or recessions are inevitable; however, a prepared investor would always get the upper hand.

Here are some things to learn from the 2008 stock market crash:

There Is Always A Risk Element To Investing

Investing might be great and maybe constantly yield returns for you, but you cannot eliminate the risk factor that comes with it. As such, you must always consider the risk factor that comes with it.

As such, your risk management systems like hedging as well as contingency plans should always be in place. Economic indicators are known to spur optimism and this optimism has been known to lead to complacency.

When the chips are down and it is apparent that a loss is on its way, do not get carried away with trying to gain ‘something’ from it. Your only focus should be to control risk. You must first conservatively protect your investment and position yourself for opportunities. Don’t let greed get in the way.

Never Invest For Short Term Gains; Stay Put

This is one thing we have spoken about time and again on Yochaa. Investing for short term gains would have you shot in the leg. There is a high chance that the funds would not be there or the stock would be performing badly when you want the money and you would be forced to lose from it.

Also, in the face of dwindling investments, stay the course and wait for the investment to come up. More often than not, investments would always follow their full cycle.

Buy When Prices Are Falling

When prices are falling, a lot of people desperately try to pull their investments out of the market so as to savor what’s left of it. Don’t be that guy. When prices crash, it the volume increases. Keep buying and your prices would average out over a period.

Do Not Rely On Forecasts

Just before the 2008 stock market crash, the investment space was very positive. There were forecasts that house prices would continue to rise. It probably did, until it just didn’t. Investors had to learn the hard way. There is always an assumption that the officials know a lot more than the average investor. While they indeed have the right tools to make inferences, the key word still remains ‘inferences’ and these are based on mere assumptions. Assumptions are subject to change – even rapid ones.

Remember The Full Cycle

The panic of recessions and crashes tends to make investors remember that there is always life after the evil. There would almost always be a chance to recover from the losses. The problem is that investors never wait long enough to see it happen. They sell off. Night might seem really long, but the morning would always come.

Written by Lawretta Egba.