Joshua Brown, The Reformed Broker writes: I don't try and guess the close on days like yesterday, but there are a few guidelines. Below are my 10 rules for surviving a stock market crash, as originally posted August 19th, enjoy and learn You want to survive this crash and the next one? Then follow Downtown Josh Brown's Rules for Surviving a Crash:
1. Acknowledge that its a crash. Once we're past down 10% in the Dow Jones Industrial Average from wherever the peak was (yes, the Dow is a way better crash gauge than the S&P 500), you can stop saying correction and start saying crash. Better to be wrong in hindsight on the nomenclature.
2. Pencils Down! Whatever trendlines or individual stock research you were working on needs to be shelved for the moment. Your drawings and calculations will not work here. If you happen to buy a stock and it rips higher, it will not be because of your research, it will be because the market went up. Correlations always get jiggy in crashes, stocks become commoditized like bushels of wheat that must be liquidated regardless of the underlying businesses.
3. Don't listen to "stockpickers" or sell-side equity analysts. They are only looking out from within their own little bubble and they cannot comprehend the other little bubbles around them let alone the whole bathtub. Anyone covering specific stocks needs to know when the macro gyrations trump whatever earnings they've estimated or the conference calls they've listened to. There'll be a time to "know your stocks" but this ain't it.
4. Ignore the asset-gatherers and the brokerage firm strategists, their job is to calm markets and soothe investors. Let's say Morgan Stanley runs $1 trillion in stock market wealth for investors. And then let's say they felt there was serious trouble ahead. Do you really think they would ever make the sell call? Can Morgan Stanley really say "Sell 20% of your equities"? No. Because that would be $200 billion in supply hitting the stock market at once - they would crash it all by themselves! Too Big To Keep It Real has always been the problem with the wirehouse advice model...
Read more: http://www.thereformedbroker.com/2011/09/22/the-ten-crash-commandments/#ixzz1YnNt6Wqk
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