Overall, I’m a dollar-cost averaging investor so I do receive some benefit in my account when the market has dips.

However, when the market has days where it dips 600 points in the DOW in one day, I still feel the pain.  Or at least I did in the past.

These days as long as the stocks that I own have value, I just let them ride.  It’s never good and quite disheartening to cash out at the bottom of a deep dip in the stock market, only to see it rebound the next day.  When I was younger I would occasionally make this error, but now I just leave the stocks I have invested in the market go because the stocks that bought have a good story and financial figures.

Still, it’s a bit painful to watch the value of your portfolio drop, so I created a little distraction to take some of the pain out of a downturn in the market.

Here is what I do:

1. Keep a small position in cash that I use for play money (not much, just a few thousand)
2. I divide the money into 2 or 3 parts.
3. I follow and invest in a favorite stock that I know very well.
4. I buy the stock as long as the market falls (and the stock falls in price too).
5. I do the purchase of the stock in a Roth IRA, that way I avoid the capital gains tax.
6. If the stock market falls by another large percentage, buy more with the second amount.
7. If I have a third amount, and the market continues to drop, I buy with the last amount.
8. Next I wait for the market to recover, knowing that I got great low positions on my purchases of my favorite stock.

This process is what I use to take the bite out of a down market.  It’s more of a game than a real investment strategy, but at least I’m not as upset when the market is in a downward spiral.

There you have it,

MR