 Good day, fellow investors! Now we talk about how we are in the late part of the economic cycle, how a stock market crash might be coming soon, so it is proper to start preparing for one, first mentally and then by doing research on stocks and what to buy when things become cheaper. Today we're going to go through four steps that each one of us has to make in order to prepare himself mentally and leave emotions aside when stocks actually start crashing. We're going to discuss the 2008-2009 crash, how it affected people, how people were unprepared and how a lot of people lost their money and then we're going to discuss emotions, framing and then again finish with the four steps what you should do and what you should really think very good about when it will happen because sooner or later it's not whether it will happen it is certain that the stock market crash will await us. So 2009 what most people forget about 2009 it is that it happened very very fast from 2008 from May the Dow Jones was at 14 000 points and less than a year nine months later it was at 6 000 something that's a 50 drop in just nine months and that's something people think they can handle but they actually can't because when you start seeing your savings is your portfolio that you have accumulated over the last nine years when you start seeing it deteriorate in just nine months so quickly day after day stocks drop like rocks then it's very very difficult to remain rational. Further at the bottom you usually see headlines like this this is from the Wall Street Journal on March 5 2009 when the Dow was around 7 000 points people were saying the Dow will be at 5 000 the Dow will be at 4 000 etc etc panic the media will bombard you with panicky headlines and then you have to do the opposite of what the crowd does but it's very very risky because if your dollar cost average then you start buying as stocks start crashing but you have to be smart about it because everybody is saying buy the dip buy the dip buy the dip even now you hear everywhere buy the dip buy the dip buy the dip because that's the first step in a stock market crash people don't believe the stock market will actually crash like it has been the case at the beginning 2008 July you see stock markets down 20 percent and then a rebound in September people don't believe then stocks crash then it's denial then late in the crash it's complete capitulation let's see how it goes so as I said from May 2008 to July July stock market crashed 20 percent okay you say I will buy the dip and then you have three months okay stocks are so much cheaper everything looks good they are a little bit higher and then usually people decide okay I will simply buy more more then October came and stocks crashed another 20 percent okay now the dip is bigger things look much much cheaper and those who are interested in buying the dip buy even more so everything they put everything they have in stocks it's impossible to time and catch the real bottom and if you don't buy enough then you miss out on the bottom however then the stock market fell another 20 something percent and then the Dow hit 6500 points and that's when most investors capitulated I have a friend who sold everything in March 2009 everything his whole portfolio he lost 50 something percent in the previous year big money he sold everything on March 9 2009 he lost everything and he started getting back into stocks in 2016 with just one tenth of what was left the rest was just zero yielding bonds for eight years completely opposite of what he should have done but he capitulated when it was most important to hold and that's something we have to prepare mentally for and there are four steps which we'll discuss later but let's first discuss emotions and framing when you see your savings drop 20 percent 20 percent you invest more it drops again so imagine your portfolio suddenly be 50 lower that hurts you cannot even imagine because an actual loss an actual drop hits you twice three times more than a gain so a gain of 50 percent makes you much less happier than a loss of 50 percent and that's why we cannot now know how we will behave in the future further there is something that we call framing the last two stock market crashes were 50% and somehow everybody expects that the next crash will be 50% quick crash will buy in and then it will rebound again because it has been the case in the last two occasions however you frame something what happens then is that if that doesn't happen then people are toasted so be careful of your emotions how they will affect you in such a situation and of framing nobody knows what will happen therefore if you don't frame anything you're ready for anything and that's the key let's go to the four steps step number one separate your lifestyle from your stock market portfolio I know this is easy to say but is crucial if you can keep your money in the stock market you don't you know you don't need that money it's separated from your lifestyle then you can play rationally if and this is the case now in the world politicians look at the stock market asset prices inflated asset prices inflated asset prices create inflated paper wealth give people confidence and people spend more that's what the game was for politicians and central banks now when that inflation of confidence of asset paper wealth let's say bursts then everything crashes and people spend less lose confidence and they are not rational because it affects their lifestyle so always watch you keep in the stock market keep it so that you can be rational whatever happens number two remain positive so I'm saying the crash will come but remain positive when those losses hit us it's easy to turn negative and lose faith in capitalism and therefore rush for safety but if you lose faith in capitalism always think okay what's the alternative if there is an alternative and it's not capitalism that then everything you own is worthless so you might even lose it and risk it in the stock market when stocks are dropping sharply so be positive capitalism will probably prevail it's not the best system but it's the best system we have invented by now then number three now is the time to hedge when stocks crash 20 40 40 percent it's over for hedging then it doesn't really matter or it's very very expensive now when it's cheap it's time to hedge and there is a video in this card about seven simple hedging strategies that anybody can do so please look in that video if you haven't seen it perhaps you will find some interesting hedging strategies for you number four have a written investment policy write it now while you are rational while you're feeling good write it now and say okay if stocks crash 86 percent like it was the case in 1933 what would I do and they don't recover immediately so that's something that you have to have written okay when do I buy in 20 first round 40 decline second round 60 third round do I have a fourth round of buying in or not so be prepared for the worst case scenario will there be inflation should I go on margin will I be able to go on margin how risky is my job how much can I risk imagine the worst case scenario and start building from there a written investment policy so that you are not driven by emotions when shit hits the fan but you're driven by a rational investment policy decisions that you write now the key as always is to remain disciplined be rational and if you can remain disciplined when all others lose their heads then you're guaranteed of making great investments great investment returns over the long term thank you for watching hope you have a great day looking forward to a comments and I'll see you in the next video