Morgan Housel's Trigger-Based Market Crash Investing Strategy
🎯 When Should You Buy During a Market Crash?
When the stock market crashes, investors face a common dilemma:
"Should I buy after a 10% drop? Or should I wait for lower prices?"
Buying too early means you might miss out on even lower prices. Waiting too long could mean missing the opportunity entirely. There's a simple yet brilliant cash management strategy that solves both problems.
📚 Who is Morgan Housel?
This strategy was created by Morgan Housel, the author of the worldwide bestseller "The Psychology of Money." He's one of the most influential writers in investment psychology and behavioral economics.
In a 2013 article for Motley Fool, Housel shared his personal plan for investing cash during market crashes. True to his style, the strategy is elegant and simple while containing profound insights.
🔧 What is a Trigger-Based Investment System?
Housel proposed a Trigger-Based Investment System.
The core principle is straightforward:
- Invest predetermined amounts when the market drops by specific percentages
- Increase investment amounts as the decline deepens
- Set realistic expectations for how often each trigger point occurs
💡 Why Does This Strategy Work?
- Systematic: Invest based on rules, not emotions
- Realistic: Based on actual historical data
- Flexible: Maintain cash reserves for further declines
- Psychological relief: No need to go all-in at once
📊 Understanding the Basic Structure
Housel's strategy is designed based on $1,000 in cash:
| Market Drop | Investment Amount | Frequency |
|---|---|---|
| -10% | $100 | ~Every 11 months |
| -15% | $220 | ~Every 2 years |
| -20% | $300 | ~Every 4 years |
| -30% | $270 | ~Every decade |
| -40%+ | Remainder | Few times per century |
The key insight is that this strategy doesn't try to time the market bottom. Instead, it ensures you're prepared to respond systematically to any situation.
🌟 Continued in the Next Article
In the next article, we'll analyze each trigger point in detail with historical data. Using JP Morgan's research, we'll see how often this strategy would have been triggered over the past 45 years!