The Black Swan event refers to incidents that are unexpected, hard to predict, and have a significant impact. They are typically sudden and very rare events that cause a major shock to the stock market and other financial markets. Black Swan events may include natural disasters, wars, financial crises, etc. Due to their unpredictability, Black Swan events can cause severe market fluctuations and even trigger a stock market crash. Therefore, how to deal with possible Black Swan events when investing in the stock market has become a question worth thinking about and discussing.
I believe that dealing with Black Swan events in the stock market requires the following five points:
1. Make a good investment portfolio and asset allocation
Making a good investment portfolio and asset allocation is an important strategy to deal with Black Swan events in the stock market. In the face of unpredictable situations, a diversified investment portfolio can help reduce risks. By spreading funds across different industries, different regions, and different types of assets, you can reduce the losses caused by the poor performance of a single investment.
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For example, plan the following for a fund of 1 million yuan: 200,000 yuan for insurance, 300,000 yuan for bank fixed deposits, 100,000 yuan for money funds, 300,000 yuan for 10 stocks in different industries, and 100,000 yuan for index funds.
If you have real estate and gold at home, then such an asset allocation can be considered perfect.
Such asset allocation has a strong ability to resist Black Swan events. Even if the stock market crashes due to reasons such as war and financial crisis, because we still have 200,000 yuan of insurance and 300,000 yuan of deposits, 100,000 yuan of money funds, and the value preservation and appreciation of gold, etc., this makes our investment risk much smaller than if all 1 million yuan were invested in the stock market.
2. Do not use leverage
When dealing with Black Swan events in the stock market, an important strategy is to avoid using leverage. Leverage means borrowing funds to increase the scale of investment in the hope of obtaining greater returns. However, when a Black Swan event occurs, the market becomes unstable and the risk increases, and such operations may lead to greater losses. Therefore, in order to reduce risks, investors should try to avoid using leverage for trading.Masters perish by leverage, but not all who perish by leverage are masters. Many investment masters and financial institutions around the world have gone bankrupt due to the use of leverage. The most famous is the King of World Speculation, Jesse Livermore; his success stemmed from the use of leverage, and his bankruptcy was also due to leverage.
3. Long-term Investment
Long-term investment is a common strategy to cope with black swan events in the stock market. Unlike short-term speculation, long-term investors choose to invest in companies or assets with long-term growth potential and stable performance, considering the market's fluctuations and risks comprehensively. Such an investment strategy helps to reduce sensitivity to specific events, as even if a black swan event occurs, long-term investors usually choose to hold and wait for the market to recover. They believe that over a longer time frame, the normal market trend will prevail and bring returns.
For example, many years ago, Moutai's stock price plummeted due to the plasticizer incident, Yili Shares collapsed due to the toxic milk powder incident, and the bio-pharmaceutical sector suffered a significant drop due to the Changsheng Biological incident. If we had established the concept of long-term investment at that time and conducted a comprehensive analysis, we would inevitably conclude that these were only temporary difficulties. As long as we persist in long-term holding, we will inevitably gain substantial investment returns.
4. Keep Reserve Funds
When dealing with black swan events in the stock market, it is very important to have some reserve funds. Black swan events often trigger violent fluctuations in the stock market, leading to losses in the investment portfolio. To cope with this situation, we need to maintain a reasonable cash reserve. These reserve funds can be used to seize the low points in the stock market for buying, or to gradually increase positions after the market stabilizes. In addition, reserve funds can also be used to deal with other emergencies or opportunities. By keeping enough reserve funds, we can more calmly deal with the market risks brought by black swan events.
The 200,000 yuan I mentioned earlier for insurance, 300,000 yuan deposited in a bank's fixed deposit, 100,000 yuan invested in money market funds, 300,000 yuan invested in 10 different industry stocks, and 100,000 yuan invested in an index fund. The 300,000 yuan in bank fixed deposits and 100,000 yuan in money market funds are reserve funds. Once the stock market plummets due to a black swan event, these 400,000 yuan can be used to buy at the low point.
5. Timely Stop LossWhen facing a black swan event, timely stop-loss is an important preventive measure. When stock prices experience a significant drop or market conditions undergo drastic changes, promptly selling the held stocks can limit the expansion of losses. Stop-loss can help investors protect their capital and reduce risk exposure during market fluctuations or declines. To set a good stop-loss point, it can be formulated based on individual risk tolerance and investment objectives, and it also needs to be flexibly adjusted according to market conditions.
When there are significant changes in the fundamentals of a company, we must stop the loss in time. For example, if the company's products are suddenly replaced by new products, and the company loses its core competitiveness, we must sell in time to avoid the expansion of losses.
In summary, on the premise of establishing asset allocation and stock portfolios, long-term investment is carried out without financing and borrowing, and attention is paid to the changes in the fundamentals of the invested varieties, which can maximize the prevention and resolution of black swans in the stock market.
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