My top 3 lessons from April’s stock market meltdown

A stock market crash refers to a sudden drop, often over a few days, and commonly in the double digits. At the beginning of April, we got that alright, as sweeping tariffs on nearly all US imports were announced.

The tech-driven Nasdaq Composite fell nearly 12% in just two days, while the S&P 500 and FTSE 100 indexes also slumped by double digits. These were among the steepest short-term drops ever.

Since those crazy few days, many shares have rebounded strongly. The Nasdaq is up 25% and the FTSE 100 has gained 14%.

Of course, the market could always tank again, especially with uncertainty lingering over tariffs. But here are three lessons I have taken away from that April slump.

Have dry powder ready

Donald Trump was elected in November, a result that was cheered by markets as he promised to cut taxes and regulation.

However, I remember his first term as president when he initiated a trade war against China in mid-2018. My portfolio lost over a third of its value inside six months!

Not only was this jarring, it was also frustrating. I was fully invested then and not in a position to deploy any significant amount of money into stocks while they were on sale. In hindsight, after the market recovered, I saw this as a missed opportunity.

In November then, I sold my holding in chip equipment giant ASML. This is a wonderful company, but it traded at a premium multiple that I thought might not be sustainable during another US-China trade war.

Diageo was another stock I sold in January. While US tariffs will be manageable for the spirits giant, they’re hardly conducive to growth.

So, when ‘Liberation Day’ arrived, I had some dry powder ready to put to work from the sale of these two stocks.

Have a list ready

The next thing is to have a list of shares to consider buying if they tank.

Heading into April, I had a few on my wish list. These included Ferrari, Intuitive Surgical, Shopify (NASDAQ: SHOP), Palantir, and Holiday Inn owner InterContinental Hotels.

These were all stocks I wanted to buy — or own more of — but each one looked too pricey. With my pre-made buy list though, I was ready to capitalise on any fear-driven selling.

Don’t wait

Finally, there can be a temptation to wait and see if the market keeps falling. In other words, if a stock has fallen 40%, you might rather it fell 45% or 50% before pushing the buy button. But stocks can rebound quickly!

But when Shopify stock crashed nearly 24% in two days, I added to my holding in the e-commerce enabler right away. I did so despite the risk that higher prices caused by tariffs may lead to less consumer spending, thereby impacting Shopify’s transaction-based revenue.

Shopify powers millions of merchants globally and is the go-to platform for online entrepreneurs and small to mid-sized businesses.

Fact is, e-commerce is still growing, especially in emerging markets. Shopify is well-positioned to ride this wave as businesses shift online.

Since early April, the stock has rebounded by 38%. I was only able to take advantage of this dip by knowing what I wanted to buy, having the cash to do so, and striking while the iron was hot.

The post My top 3 lessons from April’s stock market meltdown appeared first on The Motley Fool UK.

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Ben McPoland has positions in Ferrari, InterContinental Hotels Group Plc, Intuitive Surgical, and Shopify. The Motley Fool UK has recommended ASML, Diageo Plc, InterContinental Hotels Group Plc, Intuitive Surgical, and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.