How to profit from the stock market in crises? 5 secrets that experts don't tell you

 

At a time when markets seem to be collapsing and panic grips investors, some succeed in making big profits while others lose. How does that happen? The truth is that economic crises are not only times of loss, they can be golden opportunities for smart investment. Whoever understands the dynamics of the stock market in crises and reads transitions well can seize opportunities and profit from stocks even in the most difficult circumstances. In this article, we reveal to you the secrets of investing in crises that most experts do not tell you, so that you will be among the winners, not the losers.

1. Understanding the market cycle: How do stocks behave in crises?

1. A look at market volatility during previous crises

During crises, markets usually go through stages of sharp volatility and rapid decline in prices as a result of economic, political, or even psychological factors. Here are some historical examples:

 

2008 crisis (global financial crisis): It began due to the collapse of the mortgage market in America, which led to the collapse of major financial institutions and a sharp decline in global indices such as the S&P 500 and Dow Jones.

Corona crisis 2020: It caused a rapid decline in stock markets as a result of the global lockdown, before it later recovered thanks to economic stimulus policies.

2011 European debt crisis: It greatly affected stock markets in Europe, creating a state of mistrust in the financial system.

During these crises, several patterns can be observed:

Investors move from stocks to safe havens such as gold or bonds.

High panic selling rates.

Increased daily and temporary volatility in the markets (Volatility Index or VIX rises).

2. The difference between correction and collapse

To understand market behavior, it is necessary to differentiate between two types of decline:

 correction (Correction)

Definition: A decline in the price of a stock or index by 10% to 20% from its previous peak.

Duration: It usually takes weeks to months.

Context: It is considered normal and healthy in the market, and reflects a "vent" after strong rallies.

Examples: Many corrections occur every few years even in rising markets.

crash (Crash)

Definition: A sudden and significant decrease, more than 20%, over a short period of time (days or weeks).

Duration and Impact: May lead to an economic depression or prolonged recession.

Causes: Often driven by mass panics, or a major financial collapse.

Examples:

Black Monday (1987): Stock market crashes by more than 22% in one day.

Crisis of 1929: The beginning of the Great Depression in America.

Equity performance: financial and operational performance indicators that show the extent to which companies are affected by crises.

Market Cycle: It consists of stages:

Ascension

Peak

Contraction

Bottom (Trough)

The first secret: Liquidity is your most powerful weapon in crises

 

In the world of investing, nothing beats the importance of cash flow, especially in times of crisis. Maintaining sufficient financial liquidity means not only caution, but real investment intelligence.

Holding cash = greater opportunities: crises create rare opportunities to buy assets and shares at very low prices. Whoever has the liquidity in those moments has the ability to make quick decisions and seize the best deals.

When and where to buy?: During sharp declines in the markets, opportunities arise. Powerful companies that are temporarily shaken become excellent targets to buy at a low price, with the expectation that they will recover later.

Financial liquidity Having cash ready to move when needed.

Buying stocks in crises  An investment strategy that relies on buying when others are afraid.

Secret 2: Focus on defensive and dividend stocks

Defense sectors include:

Health Care

Basic consumer goods

Public Utilities

It is considered a safe haven because it provides essential products and services that are not greatly affected by economic crises.

Examples of fixed dividend companies:

Johnson & Johnson

Procter & Gamble

Coca-Cola

Duke Energy

These companies are known for their stability and ability to distribute profits regularly, even in times of crisis.

Third secret: Long-term investing overcomes panic

Success in the financial markets depends a lot on seeing far and not selling under pressure or panic when prices fall. Investors who maintain their investments for long periods often avoid large losses and make better profits in the long run. There are many success stories of investors who bought stocks at bottom times when the market was at its lowest, and benefited from the subsequent market recovery.

Therefore, it is important to adopt investment strategies based on patience and focus on long-term goals rather than being led by intraday market fluctuations.

Secret 4: Use fundamental analysis, not emotions

When you invest in stocks, it is essential that you rely on fundamental analysis rather than making decisions based on feelings or emotions that may be fickle and subjective.

How do you determine the true value of a stock?

The true or intrinsic value of a stock expresses its true value based on financial and economic factors, not just the current market price. To determine this value, you can follow these steps:

Study the company's financial and operational performance.

Analyze expected future profits and returns.

Evaluating the company's ability to grow and achieve profits.

Comparing the market price of a stock with its intrinsic value to determine whether the stock is undervalued (buying opportunity) or overvalued (selling opportunity).

Financial indicators that help in making an investment decision:

There are several basic financial indicators used in fundamental analysis to evaluate stocks, the most important of which are:

Profitability multiplier (P/E ratio)

It measures the ratio of a stock's price to a company's earnings per share.

A low multiplier may indicate that a stock is undervalued, and vice versa.

Price to book value ratio (P/B Ratio)

It expresses the stock price compared to the book value of the company.

It helps in evaluating how well the market values the company's assets.

Return on equity (ROE)

Measures a company's ability to generate profits using shareholder funds.

The higher the ratio, the better the company's performance.

Debt-to-equity ratio

It measures the extent to which a company relies on debt financing compared to equity.

A high percentage may mean high financial risks.

Return on assets (ROA)

It expresses a company's efficiency in using its assets to generate profits.

Secret 5: Smart diversification reduces risks and increases returns

The importance of portfolio diversification in crises:

Smart diversification of the investment portfolio helps protect capital from large losses during periods of economic crises or market fluctuations, as it reduces dependence on a single asset or a specific sector.

Distribution between different markets and sectors:

Spreading investments across multiple geographic markets and different economic sectors contributes to a better balance, as some sectors or markets may recover quickly while others are affected, reducing overall portfolio volatility.