How To Survive The Next Market Crash (Full Investing Plan)

At some point, a stock market crash will happen. It's not a matter of if, but when. And there's probably more talk about it now than I've seen for the last couple of years, with AI, politics, and the economy making us question whether we should stay invested or go to cash. And unfortunately, it's an inevitable part of being an investor, and we're all going to have to deal with it multiple times. And yet people try to prepare for it by doing the exact things that could make their returns worse. I'm James Helliwell. I'm a former professional trader turned financial educator, and in this video, I'm going to show you exactly how to prepare for a crash, what what to do when the market is down 20 or 30%, we're still falling, and what to buy when it's time to get back in. So with that said, here are the 4 things that I think every investor needs to focus on, and these are just as important whether you're only starting out or you've been doing this for more decades than I have. The first stage is of course in preparing for the crash, and the mistake comes before the crash even happens. What people will do is that they'll sit on the sidelines telling themselves that they'll buy at the bottom and then make a killing. And believe me, I've been there. In 2022, I even sold my house, I sold my car, my watch collection, everything, thinking that a recession was just around the corner. But thankfully I came to my senses and I put all of it back into the stock market in April 2023. Because although we did see a slowdown, the 30% sell-off never actually came. And the problem is that timing a crash is even harder than predicting one, and getting that wrong could end up costing you a lot more than the discomfort of a drawdown. There's a saying in markets that fear is expensive. And when you get into market timing, pulling your money in and out thinking that there's going to be a crash or there's now going to be a recovery, what you end up doing is potentially missing the best days even in a bear market that could end up taking a significant portion of your overall long-term return. Take for example missing just the 10 best days over a 20-year period, your return in the S&P would be less than half a buy-and-hold strategy. If you miss the best 20 days over the same horizon, you would end up with something like 25% of the return. Now the big problem is that the market's best days tend to follow its worst. So in other words, they come in bear markets at the time that most investors will otherwise be scared and sitting in cash. So timing the market is bloody expensive. The next problem is the opportunity cost of being sat there waiting around. And all the while you're sat on the sidelines, you're essentially being taxed by inflation. So over a 30-year period, in this case going back to 1995, you can see how, of course, a dollar invested in the S&P 500 did very well. It 20x'd, but the purchasing power of your cash would have been cut in half, slightly worse than that. So a dollar would only buy 47 cents today. Now it's unlikely that you're going to be sitting in cash for 30 years, but believe me, back when I was in the city and I began my career in the aftermath of the 2009 financial crisis, for the next decade I was still hearing the guys above me in the senior positions bemoaning the market, saying it'll never be the same again. And remaining in cash. And what happened is that they missed out on the strongest bull market on record. So what this shows is the longer you remain invested, let's say out over a minimum 5 or 10-year horizon, the less likely you are to ever crystallize a loss. The market has only been negative over a 5-year period 10% of the time, and that drops to 6% over a 10-year period And it's not pictured here, but over a 20-year horizon, the market has never seen a negative return. Now, of course, past performance is no guarantee of future results, but it's a pretty fair indication of what's likely to happen. It's all well and good saying stay invested, but some strategies undoubtedly fare better than others, particularly when we're looking at a downturn, whether it's a contraction or full-blown slowdown or recession. What you can see is that quality, which is the style I focus on as an investor— I applied for the fund as well as personally for many years— actually performs best during a more negative market environment. And you can see here, quality at the top, the S&P here, how it's massively outperformed not only in more negative conditions but over the course of well, that 30-year period that we just saw for inflation over the full cycle multiple times. The real cost isn't missing the bottom, it's missing the compounding. And while you're waiting, your cash isn't safe either because you're still getting hit with inflation. So the goal isn't to predict crashes, the goal is to stay invested through the full cycle and full cycles. And the best way you can do that without needing a shrink or having to rock back and forth in the corner is by owning the most resilient investing style. As companies that continue earning and compounding even when the economy slows and aren't so defensive that they lag behind the market in the better years, just as I've shown you. Now, once we accept we should stay invested, our next worry is then, how do I protect myself in a downturn so I don't end up losing everything? And this is where most people reach for diversification. They think, I'll just own more stocks, it'll be safer. But let me show you why that belief feels responsible on the way up but often collapses right when the market goes down. You need it the most. So people think that adding more stocks to the portfolio will offer them more protection in a crash. But it's not that simple, because in my experience, diversification is often an illusion, and it vanishes the moment that you need it. And that's why when the market drops, your portfolio just ends up becoming this big confusing mess of red soup, and you're stuck with a load of positions that suddenly don't seem like a good idea. And if you're actually honest with yourself, you never really understood all of them in the first place. So let me show you a better way to do it now that doesn't involve this myth of diversification and why that is a fallacy to begin with. So what happens when the market drops is that volatility increases. Up top we've got the S&P 500, you can see periods of declines here, and at the bottom we have the VIX, the volatility index, or fear gauge as it's sometimes known. And you can see how this moves in the opposite direction. So when the market sells off, the VIX spikes higher. That means uncertainty expressed through volatility is greater. And what happens when volatility rises is that correlation increases. And that's just a fancy way of saying that everything begins to move in lockstep. So it all rises together, and more often than not in a bear market, it's falling at the same time. And this chart shows it perfectly. Various crises at the top, this being the correlation, and you can see Every time we went into a bear market, whether it was 2018, 2020, or 2022, correlation moved towards 1%. In other words, all stocks and sectors basically did the same thing at the same time. And that means that the diversification was no longer there at the point that you needed it. And as soon as the panic was over and the market recovered Correlation then fell and we're back to having diversification when we didn't bloody need it because the market was rising. And this is what you hit with a screen like this: Google down 10%, Amazon down 8%, Apple down 12%. Not only the big players but also all of these small companies. Where is the green? These companies are so small in the S&P 500 you can't even see the names. So this is what you're left with. So to overcome this I'm gonna quote Stan Druckenmiller, and what he says about diversification is that he instead prefers to put all of his eggs in one basket and then watch the basket very carefully, because in his experience, this is the only way that you actually understand the risks that you're exposed to, and it's the only way that you can possibly have conviction in what you own. If you don't understand something How can you possibly believe in it? Now, the reason I like quality when it comes to being able to have greater conviction in what I own is that these companies generate cash in both good times and bad. That's the reason why it tends to be a better performing style during slowdowns and even during recessions. And what this enables them to do, because they are better quality businesses, is reinvest that cash at high rates and that enables them to compound those profits, which is what gives them the outperformance that we've just seen over the cycle. So the lesson here is that in crashes, correlation will rise with volatility, meaning that all the things you thought were independent in your portfolio begin to move together all of a sudden. And when they start to move together, it's not going to be in the direction you want because the market's dropping. So just buying more stocks is a really flawed idea because what a lot of people are actually doing is diversifying. They're spreading money into weaker positions that don't actually add any real protection. The red pill move is this: it's owning fewer truly exceptional companies that you can hold no matter what, because you know they're going to bounce back and reflect the ever-increasing earnings in the long term. And for me, that conviction comes from knowing that quality outperforms over the full cycle, which is what enables you to stick this out. And that last bit is key, because even with the right strategy, Sticking with it during a real drawdown is easier said than done, and I've been here myself so many times. When everything's red and all the headlines are screaming, your brain doesn't want a plan more than anything. It just wants relief. And that's where most investors blow it, because when your strategy goes through a rough patch, there's a tendency to abandon it and switch to something else. You see a drawdown, you see the underperformance, and you begin to question everything. And instead of riding it out, you start switching approaches and you rotate into whatever just happens to be working at that time. It's a little bit like how investors have often chased the performance of hot funds. You end up buying high to end up selling low again, right as the strategy is about to turn. So what happens is you lock in losses, you miss the rebound, and you underperform the market. So the idea of strategy hopping basically comes from 3 primary biases that we all have. The first one is outcome bias. So that's where we begin placing results before the process. This is something that professional athletes talk about. When you take a penalty kick in football or soccer, it doesn't matter if you missed the last one, you take the shot again. You've got to get it out of your head and focus on the process, how you mentally prepare to take the shot, not on the outcome and the previous outcome especially. The next one is recency bias. So that's giving more weight to more recent events. So if the last trade or the last period of performance was negative, it's weighting that more than the series of results before it. The final one is FOMO, which I'm sure many of you are familiar with. It's chasing what's currently popular. To go back a few years to the pandemic, it would of course been the ARKK ETF. It would've been many unprofitable stocks that were all going to the moon. We've seen periods with crypto, you name it. The same thing applies for investors rotating between different strategies. Here you can see the rolling 6-month returns of the MSCI Quality Index versus the MSCI World Index. And it goes through cycles, phases, —of outperformance and phases of underperformance, like anything else. Albeit it does tend to see shallower peaks and troughs. It tends to be more resilient over the long term. And you can see here that in 2025, quality actually had a bit of a stinker. It had one of its worst years. But on the right-hand side, you can see how over a decade, if you were to abandon it now, you could be abandoning 10 years of proof that it is the best place to be. And what this has actually resulted in, to give you a real-time example of this, is the valuation for quality compared to the market, the premium, falling to one standard deviation below the average, meaning that it's historically very cheap. And at the same time, the expected earnings for next year for quality stocks compared to the general market, well, you can see quality is expected to grow at almost twice the rate of the overall market, just as it's become significantly cheap. And the last thing I want to point out here before we move on is how, according to this study by the Journal of Economics, patience is what pays. You need to give yourself at least 2 years for the fundamentals to be fully appreciated in the price. So if you go chopping and changing and hopping between strategies every few months, or even in some cases every time the bloody market drops, you have no chance of outperforming. And the likelihood is that you're almost definitely going to underperform by switching. You've got to keep in mind the long-term track record and not abandon things at the very first moment that you're tested. So remember, even quality is perhaps the best strategy, certainly in my opinion, you can be in has cycles, and it will go through periods where it might look broken, but nothing works all of the time. And the goal is not to search until you find something that never underperforms. The goal is to find the strategy that you understand well enough so you can stick with it through the full cycle. So here's the test that I like to use: if you can't explain your strategy in 5 words, then you probably don't understand it well enough to survive a crash. And for quality, it's pretty simple: buy great companies and do nothing. And that logic is how I've remained committed to it over the years. Now, the obvious question is, if I'm not going to cash and I'm not diversifying and I'm not switching strategies, what do I actually do when the market drops 20% or 30% and I've got some cash to deploy? The problem here comes when people are unsure what to buy when everyone else is selling and not knowing whether the market might still have further to fall. So what happens is that people freeze and they miss the rally, or they'll rush and they'll buy the wrong things. Because remember what we said earlier about volatility and correlation— everything will be moving together, everyone's panicking, and you're not going to have that price signal showing you what's clearly outperforming because everything is going down at the same time. And when there's a bit of relief, everything will go up at the same time. And that's exactly when these mispricings happen. But it's also when people make poor decisions because they're reacting in real time without a plan. So let me show you how you can build a watchlist of great companies with levels of interest so that you know exactly what to buy and what to avoid in a sell-off. And that way you're not going to miss out on a multi-year opportunity to pick up amazing companies at bargain prices. The best of both worlds. And to do this, I'm going to take you through 3 steps, and it begins with building your watchlist. You can see an example prompt here that I've given to the AI bot that I've built InsiderGPT, my research model, Invest Intelligence. And what this does is it runs all of my parameters across all of the stocks in the universe to give me 20 ideas. That's what I've asked it for, regardless of valuation. Now, if you want to get your hands on a list of the 7 names that are the best in each category, I'll leave a link in the description to my watchlist, which you can get a copy of for free. But in essence, it's looking at these 7 factors that I've mapped out on this radar chart. So the broader the footprint, the better the company, compared to other stocks in the index. The second step, now that we have a shortlist, is to identify our levels of interest. So this is according to valuation, where things begin to look like good value or bargains, hopefully for us. Now this website is called Alpha Spread. I have no affiliation with them, but if they're watching, kudos! I think you have a really cool site. And what this shows you, amongst other things, is basically the intrinsic value of a stock on Wall Street or in the city. This is what analysts do in massive spreadsheets all their bloody lives. They just calculate this number. There are a couple of ways to look at it. There's this way and a relative lookback period comparing the stock to its own valuation history rather than external factors. Without overcomplicating things, this is how you can determine where a stock becomes a bargain. So for example, we've just seen that fair value might be $335 in the case of Mastercard according to this model. It's currently trading at nearly 500. So what we would do is enter that level, set it, and then we have our watchlist here of all the companies with target buy price that we've put in on that basis. And it's showing us whether they're still trading at a premium, so still a bit expensive, or whether we've got a green light and they might well be good value. And then what I'll do is I'll also open up a chart for example, on TradingView, and set the level here so that I have a visual representation of whether we're moving towards it, how things are evolving. And I know that when it hits that level, it's an absolute bargain. And the saying goes that if you want different results, you need to do things differently to what everybody else out there is doing. And I promise you that if you prepare in this way, knowing the companies that you want to buy, understanding the levels that you're willing to buy at, and then calmly executing those trades when everybody else is emotional either freezing, panicking, or whatever else, you're gonna get much better returns than you would otherwise. So the crash plan for me is this: before the crash, don't stay on the sidelines and miss out on compounding whilst inflation eats away at your capital. During the crash, don't rely on diversification as protection and don't strategy hop as soon as there's a drawdown. And then after the drop, don't freeze or panic buy the wrong thing. Have a watchlist ready so that you know exactly what to buy first. And that's really the whole game. Stay invested, own quality and stick with it through the cycle and execute calmly when prices dislocate. In the meantime, you might want to delete the news apps, stop doom scrolling, and watch this next video where I show you exactly how to find quality that you can hold forever. If you don't want to watch it, then maybe watch CNBC. After all, lots of bright colors and hysteria there about the next market crash. Take it easy.