What Should You Actually Do If a Crash Comes? Five Principles That Beat Prediction

If a crash comes, what am I supposed to do?

Read Jamie Dimon's warning, see that Buffett is sitting on $400 billion in cash, and you inevitably land on this question. So what do I actually do?

Don't sell anything. Instead, write down the businesses you'd love to own and the exact price you'd happily pay for each one. A crash is not a disaster, it's a sale — and only the people who decided what to buy and at what price beforehand actually manage to buy.

That's my answer. Below is why I think it's the right one, and why most people do the exact opposite.

The businesses don't disappear when the price does

Start with the most basic fact. When the stock market crashes, the actual businesses underneath don't suddenly become worthless.

Coca-Cola still sells its drinks. Apple still sells its phones. People still use Google every single day. The companies themselves are usually just fine — it's their stock prices that go on sale.

Think of it this way. If your favorite store put everything you wanted on a 50% off sale, would you panic and sprint out of the building? Of course not. You'd back up the truck and load up.

But when stocks go on sale, most people do precisely the opposite. They get scared and run. That is completely backwards.

Lower prices on the same great business means a better deal and a higher future return. And here's the part that matters most: the very best businesses in the world almost never go on sale. They're too popular, so they trade at elevated multiples in normal times. A crash is one of the only windows you ever get to buy world-class companies at a real discount to fair value.

History has repeated this pattern relentlessly

This isn't theory. The proof is everywhere, and I only need the last 25 years to make the case.

When COVID hit in 2020, the market crashed almost 40% in the span of four weeks. It was genuinely terrifying in the moment. By the end of that same year, it was at all-time highs.

In 2008 the financial crisis cut the market by more than 50%. Anyone who stayed calm and kept buying was rewarded enormously over the years that followed.

Even the dot-com crash, as painful as it was, eventually gave way to new highs.

Over and over and over. I like pulling up the S&P 500 chart going back to 1950 and asking: if you could only buy six or seven times in your entire life, when would it be? The answer is always the bottom of every crash. And those exact points were the moments when fear was highest and the story being told was the most apocalyptic.

The crash itself is not the disaster. The crash is the opportunity. The only real disaster is being so scared you miss it entirely.

Same crash, two completely different outcomes

I'll be honest: not every crash felt like an opportunity to me. 2008 and 2020 were exciting. The dot-com crash was genuinely frightening.

The reason is simple. Back then I didn't understand that when you buy a stock you're buying a piece of a business. I actually believed the market could go to zero. If someone had explained the structure to me at the time, my outcome would have been different.

Two people live through the identical crash. The one who stayed calm and kept buying built real wealth. The one who panicked and sold locked in the loss permanently.

The size of the crash didn't determine the outcome. Behavior during the crash did. And that behavior isn't decided once the crash starts — it's already been decided beforehand.

The five pillars of principle-driven investing

Which is why you need rules you settled on before the storm ever hit. I call this principle-driven investing, and every decision comes back to these five.

1. We are investors, not speculators. The basis for a decision is the value of the business, not an expectation that the price will rise.
2. Every investment is the present value of all the future cash flow it will produce. The moment you step outside that definition, you're doing something other than investing.
3. If we don't understand it, we don't invest in it. No exceptions.
4. In the short run stocks are a voting machine; in the long run they're a weighing machine. Today's price is a popularity contest result. The price ten years from now is a weight measurement.
5. A great story becomes a bad investment if you pay the wrong price. This is the most important one and the one that confuses newcomers most.

Let me expand on the fifth. A great company and a great investment are different things. Even the finest business in the world will lose you money if the price you paid already reflects all of its future growth. That's exactly what happened to the large-cap tech names in 2000: the businesses survived, and the shareholders didn't recover for over a decade.

Preparation beats prediction — what to do today

We don't try to guess exactly when a crash will arrive. Nobody can. Not Dimon, not Buffett.

Instead we focus on the one thing we can actually control: the price we pay for a great business.

We figure out what a company is worth and buy only when the price gives us an ample margin of safety. And this part matters — we do not react to crashes by halting purchases and sitting around waiting for a recovery. We keep steadily buying great companies at good prices, month after month, through the scary times and the calm times alike. That quiet discipline is what converts other people's panic into your opportunity. I laid out how to hold that discipline in practice in the dollar-cost averaging discipline guide.

In practice it feels boring, and boring is exactly what you want. Invest a set amount every month no matter what the headlines are screaming, and buy more of your favorite businesses when they finally go on sale. You're not trying to be the hero who calls the exact bottom. You're trying to be calm and consistent while everyone else swings between greed and terror.

When a warning like Dimon's shows up, the smartest possible response is to finish your preparation right now. Build the list. Write down the wonderful businesses you'd love to own and the price you'd happily pay for each. Then when the fear actually arrives and everyone else is frozen, you already know exactly what to buy and exactly what it's worth. I covered the specific filters I apply during a decline in four rules for buying crashes.

Preparation beats prediction. Every single time.

FAQ

Q: If a crash scares me, why not go to cash and buy back at the bottom? A: Because that requires being right twice — on the way out and on the way back in. Getting one of those right is hard; getting both right consecutively is much harder. In a market like 2020, which fell 40% in four weeks and ended the year at all-time highs, timing the re-entry was effectively impossible. Most people sell, watch the recovery, and buy back higher than where they sold.

Q: So should I hold zero cash? A: That's not the argument. Buffett is holding $400 billion. But that cash exists because he can't find businesses at prices worth paying, not because he's afraid of the market. The order of operations matters: your cash position should be the residue of not finding margin of safety in individual businesses, not a bet you placed on a market forecast.

Q: How do I decide the price to write on my buy list? A: Make conservative assumptions about the cash the business will generate, then work backwards with a margin of safety applied. It has to be your assumption, not an analyst's price target. Only a number you built yourself will hold up when the price is moving against you.

Q: What if no crash comes for years — am I losing out in the meantime? A: That's exactly why you shouldn't sit around waiting for one. Keep buying steadily whenever prices are reasonable, and buy more when a crash arrives. The goal isn't a strategy that requires a crash. It's a strategy that survives one and comes out better on the other side.