A simple market crash plan

A simple market crash plan     January 17, 2016 Hi fellow Fools - You've seen the headlines. Things like... "Dow Drops in Worst Start to Year Since Great Depression" And odds are that you've felt the pain in your own portfolio. Some of the best businesses I own are down 15%, 20%, or even more in a matter of weeks. Could you have predicted this stock market plunge? So, what's with the sudden panic? The market's recent plunge seems to have the same root cause as the one we experienced last summer: China. Stocks in China began plummeting on Jan. 4 and the world followed. Long-time readers of this column will remember a couple of my warnings before last year's panic. On May 22, I warned of a coming market crash. Then on June 5, I predicted what I thought would be the cause, warning that, "large segments of the Chinese stock market are in an extreme bubble." Am I some kind of stock market oracle? Not really. For the most part, I was just playing the odds. At the writing of that first column, it had been nearly three and a half years since the market had suffered a "correction" by falling 10% off a recent peak. On average, corrections happen once a year. So we were long overdue. We've since had corrections in both 2015 and (already) in 2016. People search for stock advice when they're scared I'm guessing you opened today's column because, more than any other feeling, you're worried about the stock market. I don't know you. Once again, I'm just playing the odds. Using data from Google, we can see there's only one specific time that interest in the stock market spikes: when panic is gripping the markets. And the questions people want answered are ones based on fear. Search volume asking for advice on selling stocks is at its highest point since the world felt ready to implode in 2008! Unfortunately, when you're looking for answers on what to do with your portfolio amidst volatility like this, more often than not... you're going to find the wrong answers. TV producers play up the doom and gloom, finding "experts" who called past bubbles or have long predicted crashes. Yet, few "experts" who accurately call one big crash get the next one right. Just look at John Paulson. He personally netted nearly $5 billion in 2010 alone by making a massive bet against U.S. housing, in what was called "the greatest trade ever." Smart bet! But let's look at his trades since. His investments include: Going big on banking, including a hefty bet on Bank of America (wrong) A Chinese company that was accused of fraud, a move that cost his clients a reported $720 million (very wrong) Gold (down 20% across the past five years) And his most recent bet: Puerto Rico becoming "the Singapore of the Caribbean." The U.S. territory recently defaulted amid what its governor calls a "death spiral." Not great bets. Even worse for your wealth is the "expert" who's constantly negative. If someone had told you to exit the market for cash at the start of July 2011, they would have saved you a 16% loss over the turbulent seven weeks that followed. But if that expert didn't tell you to get back into the market after those seven weeks, you would have missed a 3.5-year rally that saw stocks rise 70% from their low point. So, where does that leave us? In that May 22 email, I didn't advise you to sell all your stocks for two simple reasons. While the market was long overdue for a correction, there was no telling how much more it'd rise before that correction hit. If I told you to sell and the market rose 20% before eventually falling 10%... that's still bad advice. Even if you do correctly "call" a market downtown, wary sentiment always remains well past the bottom. In waiting for fears to subside, you'll let gains during a recovery pass you by! So, I'll play the odds one last time in this column. I've said it time and time again, but long-term stock ownership is the best way to create wealth for any investor. Your personal situation (including age and risk tolerance) should dictate what portion of your net worth is in stocks. But the bottom line is that buying stocks when others are fearful has been a wealth-building idea over any significant timeframe. Stocks have averaged a 9.5% annual return over the past 25 years and 10.1% over the past 100. And even with the correction that did come to pass last year, holding stocks the right way still turned out to be a winning strategy. Motley Fool Stock Advisor's list of long-term picks (including several that we've recommended multiple times over more than a decade ... and through many corrections) combined to return 26.9% in 2015! That in a year Bloomberg called "The Year Nothing Worked." Saying it was the worst year for asset allocation since 1937. Well, something worked! The right answer at a time like this is learning how to take advantage of the situation. Unfortunately, most investors are still too afraid to ask. I realize how hard it is to overcome the fear that stocks could fall lower. But there are so many outstanding companies that the market has essentially put on sale ... that are poised for long-term success. To help you find the stocks our analysts are most excited about right now, I'm making available a special offer for Stock Advisor. It's my personal source of advice at times like this, and the team is currently reviewing dozens of companies they believe are bargains after recent sell-offs. Click here to get started. By joining now, you'll also be among the first to access their brand-new picks being released at the end of next week. Best, Fool on, Eric Bleeker, CFA P.S. The market's recent tumble has created some exciting bargains for opportunistic investors, and the Stock Advisor team can't wait to help members take advantage. Click here to sign up now. And hey, if you cancel within the first 30 days, we'll refund every penny of your membership fee. Don't wait a second longer!   Having trouble seeing this email?  View on Web We work fervently, feverishly, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. To ensure you receive the latest and greatest from us, add Fool@foolsubs.com to your address book. Don't want any more emails? No problem... unsubscribe now, or change your email preferences here. This is a promotional message from The Motley Fool | 2000 Duke St. | Alexandria, VA 22314 Copyright ©1995-2016 The Motley Fool. All rights reserved. Legal Information.