Analysis: investor behavior strategies during stock market crashes

March 2020 turned out to be rich in events that have affected markets around the world. In Russia, the situation of uncertainty was aggravated by the depreciation of the ruble. Under such conditions, it is difficult for investors, especially beginners, to refrain from committing impulsive actions that can lead to serious losses.

In today’s article, we will consider investor behavior strategies that can allow them to survive stock market crashes with minimal losses.

If the stock in the portfolio is getting cheaper

If the investor did not manage to sell the shares at the peak of their value, and then they fell in price, this is an unpleasant situation. Here, the actions should depend on the securities of which companies are in the portfolio. If these are shares of large foreign or Russian enterprises, then the likelihood that they will completely depreciate is quite small.

In the long run, it is likely that the price will either return to levels before the collapse, or at least seriously increase. Accordingly, some analysts recommend even with the first signs of price stabilization possible to buy up the shares of reliable companies from different sectors of the economy for greater diversification.

At the same time, it is worth considering the shares of companies that pay dividends. We considered examples of such actions in our recent post. If the market decline drags on, part of the losses can be compensated at least with the help of dividends.

Investors with free rubles or dollars

When the ruble falls, there is a temptation to urgently buy “dollars” for everything. This tactic may be unsuccessful if, after stabilization of the situation in the world and in the oil market, the national currency begins to strengthen. There are ways of ruble investments that can to some extent compensate for the depreciation.

Such tools include the strategy of buying bonds of reliable companies using an IIA account. In this case, the investor will be able to receive income on bonds and use the benefits of IMS. Read more about such strategies in our article.

For beginning investors with free currency (for example, dollars), conservative strategies are well suited. These include the purchase of Eurobonds by Russian companies on the Moscow Exchange.

How to protect yourself from loss during a panic

Investors who are seriously concerned about protecting their assets use so-called structural products. Their essence lies in the possibility of choosing acceptable risk parameters. As a result, the risk of financial losses can be completely eliminated. This reduces possible profits, but provides guaranteed protection – in case of adverse dynamics of the underlying asset, the company will return to itself absolutely the entire invested amount.

The profitability of a structural product depends on the participation rate and changes in the value of the underlying asset (stock, index, etc.). If the investor chooses a participation rate of 80%, and the price of the underlying asset has changed in the direction he needs by 10%, then the income will be 8%. That is, if you invest directly in the underlying asset, you could earn a little more, but with a much higher risk.

Also, regardless of what assets the investor has at the time of a panic in the market, it is important to remain calm and remember the basic tools of risk management and capital protection. In particular, it is important to always use the tools built into the trading terminal. One of them is stop loss orders, the essence of which is in setting the price level of an asset, upon reaching which a sale takes place. This allows you to lock in profits or limit losses in the face of market volatility.

There are also so-called sliding stop orders, which are automatically rearranged when the stock price rises according to predetermined parameters. Stop Losses and Trailing Stop Lists Available to Terminal Users SMARTx.