The world of stock investing is not a bed of roses. All listed companies sooner or later end up facing crises of lesser or greater severity, either due to generalized stock market crises such as that of 2.008 and 2.009 or due to problems that only affect the company or its sector. When this happens, the last thing to do is lose your cool. In this article I will teach you to be prepared to know how to react to a stock market crisis.
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- Gowex, Pescanova)
- Another type of serious deception (Volkswagen)
- Encartism (Kodak, Blockbuster)
- Go out of style (Crocs)
Orange Alert Stock Market Crisis
Orange alert stock market crises pose a danger that can kill the company or seriously damage your business if they deteriorate or are not managed properly.
In the case of orange alert stock market crises, we must analyze each case separately to determine the impact that the crisis may have on the company's results and its ability to compete in the market in the long term.
Examples of Orange Alert Stock Crisis
- Errors or serious accidents (The BP spill in the Gulf of Mexico)
- Market adaptation errors (Nokia, Research in Motion, General Motors, Nintendo)
- Product Withdrawal (Johnson & Johnson)
- Serious political crisis (Expropriation of YPF from Repsol)
- Financial problems (Telefónica, Abengoa, General Motors)
- Deterioration of competitive advantages (Telefónica losing its monopoly)
- Sector immersed in a bubble (Renewables bubble, dotcom bubble)
Yellow Alert Stock Market Crisis
I call yellow alert stock market crises those that are produced by circumstantial factors, which only have short-term negative effects and do not affect their competitive advantages in any way.
In principle, yellow alert stock market crises tend to present buying opportunities if the market overreacts and the company is prepared to face this type of crisis.
Examples of Yellow Alert Stock Crises
- Cooling of the economy in general (BME, Inditex)
- Exchange rate related crises (Wal-Mart)
- External economic shocks (current Chinese crisis, emerging in '82 or emerging in '87)
- Other shocks (11/XNUMX terrorist attacks)
- Litigation and fines for abuse of dominant position and the like (Microsoft, Google)
Final considerations on how to act before stock market crisis
As you can see, there is no magic formula that tells us how to act mechanically in the face of a stock market crisis. We must analyze each case to determine the severity of the crisis and the influence it may have on the company in the long term.
As is usual, determining how to act in these cases requires high doses of objective analysis and common sense. As is often the case in stock investing, this seems a lot easier than it actually is.
As always, both our training as investors as experience will be essential to know how to face this type of crisis in the future. Many more stock market crises will come, I assure you. But I also assure you that Mister Market it always ends up putting each company in its place.