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A stock market crash refers to a sudden drop, often over a few days, and commonly in the double digits. At the beginning of April, we got that alright, as sweeping tariffs on nearly all US imports were announced.
The tech-driven Nasdaq Composite fell nearly 12% in just two days, while the S&P 500 and FTSE 100 indexes also slumped by double digits. These were among the steepest short-term drops ever.
Since those crazy few days, many shares have rebounded strongly. The Nasdaq is up 25% and the FTSE 100 has gained 14%.
Of course, the market could always tank again, especially with uncertainty lingering over tariffs. But here are three lessons I have taken away from that April slump.
Have dry powder ready
Donald Trump was elected in November, a result that was cheered by markets as he promised to cut taxes and regulation.
However, I remember his first term as president when he initiated a trade war against China in mid-2018. My portfolio lost over a third of its value inside six months!
Not only was this jarring, it was also frustrating. I was fully invested then and not in a position to deploy any significant amount of money into stocks while they were on sale. In hindsight, after the market recovered, I saw this as a missed opportunity.
In November then, I sold my holding in chip equipment giant ASML. This is a wonderful company, but it traded at a premium multiple that I thought might not be sustainable during another US-China trade war.
Diageo was another stock I sold in January. While US tariffs will be manageable for the spirits giant, they’re hardly conducive to growth.
So, when ‘Liberation Day’ arrived, I had some dry powder ready to put to work from the sale of these two stocks.
Have a list ready
The next thing is to have a list of shares to consider buying if they tank.
Heading into April, I had a few on my wish list. These included Ferrari, Intuitive Surgical, Shopify (NASDAQ: SHOP), Palantir, and Holiday Inn owner InterContinental Hotels.
These were all stocks I wanted to buy — or own more of — but each one looked too pricey. With my pre-made buy list though, I was ready to capitalise on any fear-driven selling.
Don’t wait
Finally, there can be a temptation to wait and see if the market keeps falling. In other words, if a stock has fallen 40%, you might rather it fell 45% or 50% before pushing the buy button. But stocks can rebound quickly!
But when Shopify stock crashed nearly 24% in two days, I added to my holding in the e-commerce enabler right away. I did so despite the risk that higher prices caused by tariffs may lead to less consumer spending, thereby impacting Shopify’s transaction-based revenue.
Shopify powers millions of merchants globally and is the go-to platform for online entrepreneurs and small to mid-sized businesses.
Fact is, e-commerce is still growing, especially in emerging markets. Shopify is well-positioned to ride this wave as businesses shift online.
Since early April, the stock has rebounded by 38%. I was only able to take advantage of this dip by knowing what I wanted to buy, having the cash to do so, and striking while the iron was hot.
This story originally appeared on Motley Fool
