The Stock Market Crash is Canceled

Read time: 5 mins

Aaaaand just like that, we’re back.

After dropping 10% in less than a month, the stock market has bounced right back and is within 1% of all time highs.

If you took my advice two weeks ago you are smiling at your computer screen right now.

If you didn’t and you joined the masses freaking out and panic selling their investments, you’re looking at your computer screen through tears of pain. 

I’d drop an “I told you so”, but I’ve got some bad news….

A recession is on the way.

In today’s issue:

• What in the world just happened in the stock market?

• How should this affect your investing approach?

• A recession is coming

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What in the world just happened in the stock market?

When I was a kid, there was one place I loved going more than any other.

Valley Fair, our local amusement park.

I was a roller coaster fanatic. As soon as a ride ended I’d sprint down the exit lane so I could get back in line.

I’d have stayed there the entire summer if I could, living on cotton candy, dippin’ dots, and pure adrenaline.

And there was one roller coaster in particular that was sure to get that sweet sweet adrenaline coursing through my veins.

Steel Venom.

You know those roller coasters that make you think you’re going to die when you ride them?

Yeah, this was one of them.

Instead of a looped track, it just had a giant steel “U” sticking 185 feet into the air.

In two seconds it would hurl you at 68 mph straight up a vertical track that seemingly had no safeties to keep you from flying off the end of it.

That trick alone was worth the price of admission, but then came the second part.

Right when you thought the ride had malfunctioned and you were going be launched into the sky and end up on the evening news, it would stop you mid-climb and send you BACKWARDS back down the way you came.

You’d rush through the loading zone as fast as it had shot you out, then get sent back UP on another vertical track behind you, watching the world rush away and wishing you were back on the ground.

Two near-death experiences in one ride.

It was awesome.

Why do I tell you all this?

Well, the stock market just pulled a Steel Venom.

In one month it dropped 10% (for some companies way more), then rocketed right back up to where it was.

I don’t know about you, but from where I’m from we call that peculiar. (The official Minnesotan term is “jeepers”).

So why does the stock market do this?

In short, because of fear.

When enough people read bad headlines, lots of people get worried about the future.

And when enough people get worried about the future, they start thinking “Maybe I should sell my stocks…”

And when enough people sell their stocks, you see dips like the one we just experienced.

Okay, that makes sense. But why did it go back up?

Excellent question. 

The first stage of a stock crash is typically the emotional, gut reaction to the news headlines.

It takes a little bit for people to settle down and figure out if there’s a real threat, or if it was as harmless as your younger brother waiting around a hallway corner to jumpscare you.

You might punch him in the kidneys so he never does that again, but he won’t kill you (probably).

If investors do decide the scary thing was real, the market will keep falling.

If instead they decide they overreacted, you get a Steel Venom.

The trouble is, when the crash first starts happening it’s really hard to tell which it is.

Which leads us to….

How should this affect your investing approach?

Some people are convinced they can tell whether a dip is a stock market crash or just a fun little roller coaster ride.

They call what they do technical analysis and look for the momentum of stock price movement to place a trade and in many cases, sell after only a few minutes or even seconds.

These people are known as day traders.

They are bored by standard stock market returns and are chasing a massive payoff in the hopes of getting rich very, very quickly.

In reality, they’re constantly chasing the next adrenaline high, just as I was as I ran around the amusement park 20 years ago.

All of the top investors I’ve ever read (the ones who make the really big money) don’t believe in that strategy at all.

That’s because, in the short term, the stock market might as well be totally random.

Up, down, left, right… who knows what the market will do tomorrow or next week?

There are too many variables (like the emotions of millions of investors) to ever predict it reliably.

But in the long term, those emotions tend to fade into the background and the real value of the companies in the stock market are revealed.

That’s why I don’t decide when to invest based on what the market is doing - I decide based on the goals I have.

If I’m trying to build wealth for 5+ years down the road, then I’m going to be a buyer of investments (like stocks).

And to take my emotions out of it, I invest on a regular, bi-weekly schedule.

Every time I get a paycheck, there’s an automatic transfer to a stock account where Fidelity automatically buys more stocks, whether I’m currently afraid of the news headlines or not.

This makes sure I don’t miss out on great buying opportunities like last week, and keeps me from doing anything stupid.

Which, if you’ve been reading this newsletter for a while, you’ll know is pretty likely.

A recession is coming

This time the stock market drop was a false alarm. 

But they won’t always be.

Sometime in the future there will be a full-blown recession.

No one knows for sure when it’s coming, but it’s guaranteed. They’re a built-in feature of our economic system.

So - what do you do knowing this?

The exact same thing we discussed before.

Set up an investing plan based on your goals - not the market - and put your investing on autopilot.

When the recession comes, your little investing machine will gobble up all those stocks at great prices. 

In fact, you might want to buy even MORE stocks when a recession hits.

And until then, you won’t talk yourself out of investing and waiting for the market to drop to buy at “the right time”.

This guarantees you’ll always be building wealth for your future self and not waiting on the sidelines wishing that you were but too scared to act.

Speaking of recessions, a lot of warning signs are starting to pop up that one may be here sooner than later.

Next issue I’ll break down what those current warning signs are. 

I’m also toying with putting together a guide to help you identify those signs yourself in exchange for sharing this newsletter with others.

If that sounds like something you’d like, reply back to this email “Make that guide, Zach!” so I know people are interested enough in it to make it.

Until next time!

Keep growing,

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