Speaker 1: It’s the story that you have all heard before, the stock market crashes, then a couple of years later, someone comes out and shows you how they made millions, sometimes billions from the market crash. Obviously, one of the most well-known ones is Michael Burry, who shorted the stock market in 2008 and made a whole lot of money that was made famous by the movie The Big Shorts.
Also, you’ve got George Soros, who pocketed a billion dollars in a day by shorting the British pound. You got Andy Kriya. He made millions as the Kiwi crashed. These guys, they had specific tactics that they use to make money in the crash. While most investors were getting crushed, pulling out of the market and losing money, they made money. Now, what I want to do in this video is talk about how you can do the same. Now, I can’t guarantee that you’re going to make millions. If I did, you should probably click off this video. I mean, that all depends on how much you start with. But I am going to show you tactics on how to make good money in a stock market crash. So we’ve all heard of the stories of a stock horror shows GoPro. Everyone thought this company was going to be worth tens, if not hundreds of billions of dollars. Fast forward to today and how many people are buying GoPro? Not many at all. And thus the stock got absolutely crushed. It’s fallen by over 90 percent. Aurora, that’s a bit more of a recent example. Everyone thought that once Wade was legalized in Canada that Aurora, the company, would take off. Yeah, not so much. Once all of that hype had died down, it actually fell from one hundred fifty Canadian dollars to under 10 Niccola. And even more recent example, again, a stock that had a lot of hype because of the EV potential, but it got crushed.
Now, the reason I’ve showed you these three examples is because not all investors lost money with these stocks. There was this astute group of people who were able to identify the hype and they went and shorted these stocks. Once the bubble popped and the stocks crashed, these investors made good money because when you short a stock, you profits. When it goes down, if it goes up, you lose money. So if you are able to identify trends when stocks are getting hyped and overpriced, then you can make a lot of money through shorting them. I mean, let’s be honest. Sometimes it can be easy to tell when stocks are overhyped because you get your neighbor John, who knows nothing about investing and he tells you he’s buying the stock stocks all on YouTube. The stocks in the news is on social media. These are often signs that they’re overpriced. For example, Bitcoin at the height of Bitcoin, everyone was talking about it. I remember my flatmates, Binit, my friends, who didn’t even know what the word investments. They bought it. And what do you know? Next thing, the bubble popped. So that’s one way you can make money in a market crash. It’s by shorting certain individual stocks. That’s the tactic that Michael Burry used to make money from a crash. He shorted subprime mortgage bonds, or George Soros. He made a billion dollars in a day by shorting the British pound. The other thing that you can short, if you are extremely brave, is the stock market as a whole. As of today, the market is at or close to all time highs and there’s a lot of people saying it’s overvalued. Even Michael Burry himself thinks the market looks overinflated. He said index fund inflows are now distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages more than a decade ago. The flows will reverse at some point. He points to that and it will be ugly when they do. Like most bubbles, the longer it goes on, the worse the crash will be. Now, this crash that he’s speaking of, if it happens and you shorted, well, you’ll make good money. The problem is that we don’t really know when a crash may occur. It could be five years from now. That’s why I never like shorting the stock market as a whole, because it’s just too hard to pick the timing, you know, betting against the entire market. I just don’t think it’s a good idea because over time, the market makes money and will grow.
They just have these short downhill blips, which no one exactly knows when they will occur. So with regards to shorting, the way to go is by picking overhyped stocks or currencies, ones that you can easily identify that are overvalued. I don’t really recommend shorting the stock market as a whole, but again, that’s your choice. So that’s one method to make money in a market crash, shorting assets. The next method that I’m going to show you is the Warren Buffett method of making money in a market crash. This is the method that I personally use as well. I want to get into some short term history to show you this example. 2007, 2008 wasn’t a. One year for most investors, it was the year of the housing bubble crash where not only did house prices get burns, but the market crashed as well. If we take a look at crash by over 50 percent from November 2007 to March 2009, so the average American stock investor lost more than half of their worth in just over a year. Imagine that. Fast forward just a year later. For some investors, they lose more than half of their entire life savings. Now, naturally, this is what most people do. Warren Buffett calls the emotional investing around the bottom of the crash.
They take their money out of the market and they put it in assets that are considered safe, like cash in the bank. They think stocks are no longer for me. I’ve lost so much money. Stocks, they crash. Stocks are no good, so they sell their shares around the bottom of the crash as prices are falling, a.k.a. while they’re cheap emotional investing. But this gives an enormous opportunity for investors who don’t invest with their emotions, those that invest while looking at the facts. Facts of the matter were there. Early 2009 was the best time to invest when stocks had crashed. Everyone was panicking. Most were selling. There was blood in the market straits. As the saying goes, that is when you want to buy, because that’s when stocks are on sale. And Warren Buffett in 2007, he was very cautious with how many stocks he bought. He was mainly buying bonds. But in 2009, after the crash, Buffett went on a buying spree, deploying all of that cash that had saved up for for so long. And it paid off those who bought in the midst of panic and the recession, they made the highest returns. I mean, the stock market since March 2009 has gone up over 400 percent. So if you want to make money in the next market crash, always remember the best time to buy is in a crash when everyone else is panicking. And you might say, Koopa, the market went up 400 percent. That’s five times the amount. That’s not necessarily going to make me a millionaire. And yes, I 100 percent agree. But there is one thing that you might be forgetting. The eighth wonder of the world compound interest. You know, there’s the old tale of this man asking for one thing from the wealthy king before he dies. The king says, yes, I’ll give you the thing depending on what it is the man says. You see that chessboard that you’re playing on, please grant my family one grain of rice for the first square to for the second, four for the third, eight for the fourth square and so on. For all 64 squares. The King grants the man his wish, thinking it would be just a small gesture for poor dying man before the king knew what one to the power of 64 was worked out to be there. Even his entire kingdom did not produce that much rice, so he had to give his whole kingdom away. And that’s the power of compound interest. If you invest small amounts of money now and give it time that can turn into millions in the future, what you need for the recipe is a higher return, which you can get by investing after a crash. And of course, time and the market time to let your investments compound on themselves and grow.
Now, the last thing I want to mention about making money from a stock market crash is choosing the right investments at the right time. I want to bring your attention to this graph. It’s a graph by Fidelity which tells you what type of sectors do well in different parts of the market cycle. At the top of the cycle, you want to be playing the game defensively. You want the precious metals like gold which holds its value. You want consumer stocks which are not cyclical in nature. You want health care, which is still needed no matter what market we are in. However, when the market starts crashing, you want to adjust your strategy slightly at the bottom of the market. The consumer cyclicals and financial stocks are the ones to go for because they’re normally ridiculously cheap in price and no one wants to own them. When the market starts recovering a little bit, then it’s time to adjust into sectors like transportation and especially technology. Because at the start of the bull market, after a crashes, technology stocks are so cheap they have a lot of potential for growth. For example, Netflix stock since 2009 has gone up over 6000 percent. Amazon, that’s gone up over 4500 per cent, Apple over 3500 percent after a. Market crash, you really want to be picking out the right type of stocks in order to make money, the ones that are going to be disruptive over the next 10 or so years, if you can do this, pick them early and reinvest your profits, you can make a lot of money. There’s no doubt about that. Most people look at a market crash and it’s something that they fear.
However, if you have the right mindset and you use the correct tactics, some of which I’ve outlined on this video, a crash can be something that you can turn into a great opportunity.