The Only Protection You'll Ever Need in a Market Crash

The unspoken reason why most investors panic-sell precisely when they should be buying...

When markets collapse, most investors reach for the same playbook.

Gold. Cash. Bonds. Treasuries. Put options.

But what if I told you the single most effective defence against market carnage has nothing to do with asset allocation?

It's something far simpler – and far more powerful.

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Know What You Own

That's it. That's the whole strategy.

Sounds too basic?

Let me explain.

Last week, I met with a friend who'd managed to buy more stocks during the Covid crash while his peers were panic-selling.

I asked how he maintained his conviction when markets were in freefall.

His answer was illuminating:

"I knew exactly what I owned, why I owned it, and what each business was worth. The market was suddenly offering me 30-40% discounts on companies whose fundamental value hadn't changed."

This stuck with me.

Most investors don't truly know what they own.

They hold positions based on vague narratives, recent performance, or someone else's recommendation.

And that's precisely why they crumble when markets head south.

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The Fear Paradox

Think about it: Why do most investors sell during crashes?

It's not because they've suddenly done complex valuation analysis and determined their holdings are still overpriced even after a 30% drop.

No – they sell because they're substituting price action for knowledge.

When you don't genuinely understand what you own, the market becomes your guide.

And when the market plunges, fear takes over.

Each price drop confirms your worst suspicions.

As Seth Klarman once noted:

"The stock market is the story of cycles and of the human behaviour that is responsible for overreactions in both directions."

This is why most investors consistently violate the only investing rule that matters: Buy low, sell high.

Instead, they panic-sell at the bottom and buy euphoric tops. They follow the crowd precisely when they should be defying it.

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The Knowledge Shield

Now consider the investor who intimately knows each of their holdings:

• They've calculated what the business is approximately worth

• They understand its competitive advantages

• They've studied its financial statements

• They've considered bear case scenarios

• They've assessed management quality and capital allocation

When markets collapse, this investor doesn't see chaos. They see a sale.

They know the difference between price and value. They recognise when Mr. Market – as Benjamin Graham described him – is having an emotional breakdown and offering stocks at fire-sale prices.

The key is having the conviction to act when others are paralysed by fear.

And that conviction comes from one place only: knowing exactly what you own and why you own it.

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The Preparation Gap

Here's what most investors miss: The time to prepare for market crashes isn't when they're happening.

It's now.

The investor who thrives during downturns does their homework long before the storm hits. They:

1. Build detailed understanding of each holding

2. Establish clear valuation thresholds

3. Maintain a watch list of quality businesses to buy when discounted

4. Keep some powder dry for opportunities

5. Commit their thinking to paper – so they can revisit it when emotions run high

As Warren Buffett famously said:

"You should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy."

Your ability to act rationally during market chaos depends entirely on the work you do during market calm.

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The Simple Test

Want to know if you're truly prepared for the next downturn? Try this:

For each position in your portfolio, answer these questions without looking anything up:

1. What does this business do? (In one simple sentence)

2. What are its three main competitive advantages?

3. How does it make money?

4. What could kill this business in the next decade?

5. What would you pay for the entire company if you had the means?

If you struggle with these questions, you don't know what you own.

And what you don't know will eventually hurt you.

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The Last Word

The next market crash isn't a matter of if, but when.

When it comes, most investors will frantically search for safe havens, complex hedging strategies, or the exit door.

The prepared investor will do something else entirely:

They'll check their shopping list.

Because they know that market crashes don't destroy wealth – they transfer it from the fearful to the prepared.

So before worrying about the next downturn, ask yourself: Do I truly know what I own?

That knowledge will protect you more than any hedge ever could.

Have a good week,

Dom
Founder & Chief Investment Officer
Schwar Capital

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What's one holding in your portfolio that you could confidently buy more of if it dropped 30% tomorrow? And what specific knowledge gives you that conviction? Share below - I read + respond to every comment! 💡

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Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions.