Q.
TRUE or FALSE? The 2008 Stock Market Crash Was A Disaster For
Investors?
A. FALSE - Smart Investors Made More Money During The 2008 Stock Market Crash Than In the Preceding 3 Years Of Bull Markets.
As you may
have noticed the stock market tends to fall much faster than it
rises.
During the 2008 Stock Market Crash years of positive gains were wiped
off within days, weeks & months.
So how can the 2008 Stock Market Crash or any stock market crash for that matter be used as a positive by investors?
Simple - Most investors believe that you can only make money when the market is rising but professional and smart investors realize that good stock investment doesn't need to rely on a bull market. All you need to know is one very simple investment strategy that allows you to take advantage of falling stock prices. You might be surprised to know that this simple (and legal) strategy made hundreds of thousands of dollars in literally hours and days during the 2008 stock market crash.
What is this 'Stock Market Crash' strategy and is it risky?
The great thing about this strategy is that not only can you make lots of money by using it but it actually reduces your risk. In technical terms the strategy is called 'buying puts' in reality it is like buying insurance for your shares.
The best way to explain this strategy is to use the analogy of buying insurance for your car. Lets say you own a car that is worth $30,000, when you insure it you are basically buying 'piece of mind' so that no matter what happens to your car it will still be worth $30,000. In order to get this insurance you pay a premium.
Well
you can do exactly the same thing with your shares. For
instance lets
say that you had 1000 ABC shares that were worth $50 each (total of
$50,000). You could pay a premium to insure those shares for
$50.
Therefore no matter what the financial market does you will still be
able to sell those shares for $50. Even if there was a stock
market
crash are the share price plummeted to $30 you would still be able to
sell them for $50. So just like car insurance you are buying
'piece of
mind' for your shares. Even the 2008 stock market crash
wouldn't have
effected you because no matter how low your shares went they would have
been protected at the price you bought them.
So that is a great 'Protection' strategy against negative stock market trends but how can you use this to actually make money from a stock market crash?
Imagine for a second that you could buy car insurance for a car you didn't own - Lets use the same example. You hold an insurance policy for a $30,000 car but you don't actually own the car. What would happen if the car was damaged badly in an accident (stock market crash)? The holder of the insurance policy would receive a payout from the insurance company which would normally go to replacing the car. . . but if you didn't own it in the first place then you are free to spend the money however you like - mmmm interesting?
This
is exactly what you can do when the the stock market is
crashing.
During the 2008 stock market crash smart investors made millions of
dollars doing this exact strategy. Lets assume they bought
the
insurance for the $50 ABC shares but didn't actually own the
shares.
Stock investing without actually owning the shares is a weird concept
but once you get your head around it you will be amazed at the
possibilities. Then when the 2008 stock market crash hit the
ABC stock
chart plummeted to $30. Therefor the investor was able to
collect $20
for each share that they bought insurance for. If they bought
insurance for 1000 shares that is $20,000. Not a a bad for a
few
days/weeks work?
So buying puts (buying insurance) can be broken down into 2 strategies
1. Insurance for your shares - protection
2. Taking advantage of a falling market
If you are interested in learning more about this strategy then i recommend you look at doing Jamie McIntyre's home study program. It is a all round investment program that explains these types of investment strategies in much more detail. Shares Property Money is currently giving away a free introductory DVD by Jamie McIntyre that will give you a good idea of what his homestudy program is about. Go to our Jamie McIntyre page for more information
Will I Really Get A Free CD Sent To My Door?
The 2008 Stock Market Crash, 1987 stock market crash or the 1929 stock market crash have all presented massive opportunities to investors. Whether they have have bought puts or simply bought stocks when the prices are low the one thing that everybody should remember is that eventually everything will turn (To see the history of every stock on the asx simply go to www.asx.com.au). If you look at the stock market history then this is for certain. The question you need to answer is are you fully educated and equipped to take advantage of the opportunities?