Earlier this year, the Dow Jones Industrial Average plunged into bear market territory -- defined as a 20% or more drop from its most recent highs -- in a mere 20 days, making it the fastest such decline in recorded history. Fortunately, the market has been recovering nicely over the past several weeks. Since late March, the Dow Jones is up by more than 30%.
Still, another market crash isn't entirely out of the question. In case it does happen, here are three things you can do as an investor to come out of it in one piece.
Some of the most successful investors have a long-term mindset -- and with good reason. Regardless of what happens in the short term, stocks of great companies continue climbing in the long run.
It is difficult not to feel at least a bit anxious watching the value of your securities drop significantly in a relatively short period. Depending on its severity, a stock market plunge can rattle even the most seasoned investor.
Taking your money out of stocks may seem like the smart thing to do during a market downturn -- a phenomenon known as panic selling. Yet panicking is exactly the wrong thing to do if the market crashes.
It certainly makes sense to review the securities in your portfolio during a market crash. If you no longer think some of these securities have a bright future as a result of recent developments, getting rid of them may be wise. However, if a company's investment thesis remains fundamentally unchanged by the factors that led to the market crash, sticking with it through thick and thin will likely pay rich dividends down the road.
Buy stocks of great companies for a discount
When the market plunges, it almost invariably leads to some great stocks being thrown in the discount bin. As such, a market crash can actually be an excellent time to buy stocks.
Of course, it's important to set money aside in a robust emergency fund before using your cash to invest, particularly if the market crash in question is associated with broad economic challenges. However, if you have money to spare, you could score great deals on equally great stocks.
One stock to consider buying if the market crashes again soon (or even if it doesn't) is Intuitive Surgical (NASDAQ:ISRG).
This medical device company hasn't been spared by the ongoing crisis. It derives much of its revenue from the sale of instruments and accessories for its da Vinci Surgical System. Last year, the company's instrument and accessories revenue was $2.4 billion, while its total revenue came in at about $4.5 billion.
However, the company's instruments and accessories revenue largely depends on the number of procedures performed with the da Vinci robotic system, and many elective surgeries have been delayed amid the COVID-19 outbreak. In short, the pandemic is seriously disrupting Intuitive's business.
Still, as the company itself says, "elective surgery does not mean optional," and hospitals can only postpone these surgeries for so long.
As the dust settles, things should get back to normal for the healthcare company. Intuitive's CEO Gary Guthart said, "While these procedures may be delayed in the short term without treatment of some sort, the disease and its impairment persist and often worsens. Said simply, the vast majority of these patients will ultimately seek treatment." Intuitive still looks poised to dominate the robotic-assisted surgery market once the pandemic subsides.
The company holds a clear competitive advantage over most of its rivals in this space, and the market is still ripe for growth. Intuitive's stock is worth buying, especially if its shares drop significantly as a result of a market crash.
Don't try to time the bottom
While it makes sense to buy great stocks at a discount amid a market crash, trying to time the bottom is a losing strategy. Simply put, it is next to impossible to know precisely when the market will hit rock bottom, and betting on the chance that you might be able to do so could end up costing you in the long run.
Instead, it is best to focus your time and energy on other things, such as finding promising stocks to buy. Whether you buy such stocks once they bottom out or before, you will be glad you did so in a few years.
The key takeaway
A market crash can be a stressful time for investors. But the most important thing to do in the next market downturn is to remember why you bought the stocks you own in the first place. If history is any guide, the market will recover, and shares of great companies will continue inching ever higher. Trusting this process can be difficult, but doing so is one of the keys to earning above-average returns in the long run.