Six Rules for Investing in a Crisis Market

The rules

Rule #1: Never try to call the bottom

It’s OK if you buy something and then it goes down more. Just don’t use what’s called “leverage” (i.e., borrow. In this case, you can go broke).

Rule #2: While some say, “Buy when there is blood in the streets,” I don’t like to do that

It’s OK to wait until there is some decent data out there, like stabilizing cases in the U.S., etc. 

The market might not be 33% down by then. It might just be 20% down. But there will still be MANY, MANY bargains. 

Rule #3: Don’t fight the Fed

And the Fed just put in a bunch of stimulus. 

Expect the stimulus to be fully seen in the economy within six months. But the market will anticipate it before then. 

Rule #4. Look at what’s changing: drones, robotics, oil, delivery, remote education, video conferencing

There are probably opportunities here that nobody realizes yet. 

Rule #5: The 3% rule

If you are buying stocks (as opposed to mutual funds or ETFs), never put more than 2–3% of your portfolio into any one investment. 

Being able to sleep at night is core to investing. If I am too dependent on one stock, then I have trouble sleeping. 

Warren Buffett would disagree. He made a ton of his money when, in 1962, he put 1/3 of his hedge fund into American Express while everyone else thought Amex might go bankrupt. 

BUT… he did his research. And he’s Warren Buffett. 

Rule #6: Risk over return

Manage risk over return. If you take huge risks, you won’t think straight. 

  • Don’t get leveraged
  • Know when you plan to get out of a stock that’s going down as well as going up
  • Use a “story stop,” not a price stop. Get out when the story changes
  • iDon’t just buy something because it’s down. Look for things that have a variety of reasons for upside potential and a variety of reasons why downside is limited
  • Do your own research. 

What to look for right now

  • Stimulus package passed
  • Stability in the number of new deaths per day in Italy (March 22 had a 15% decline in new deaths. If that trend continues, then it’s a map of where the U.S. will be in 10 days)
  • Signs that the lockdown here will be over. Every day of the lockdown is another possible hit against GDP. The lockdown might be OK, but the uncertainty of its length will keep driving the market down more. 


I personally would wait but I also think right now is a bargain. 

I just don’t like when it goes down OR up 10% a day. I like a few days or weeks of stability. 

After 9/11, the bottom didn’t really occur until March 2002. During the financial crisis the market also didn’t bottom until March 2009. It was a strong buy in October.

But there was time. There’s always time. 

Share This Post

Other posts you might be interested in: