How to make the best of a crash

 Via https://x.com/i/status/2079312630058287192

I ASKED A BILLIONAIRE HOW HE NEVER PANICS DURING CRASHES. HE SENT ME THIS


No explanation, no context, just the framework.


Price falls 5% → Hold

Price falls 15% → Buy 10%

Price falls 25% → Buy 20%

Price falls 40% → Buy 30%

Price falls 60% → Buy 40%


Price rises 5% → Hold

Price rises 20% → Hold

Price rises 25% → Sell 10%

Price rises 40% → Sell 20%

Price rises 50% → Sell 35%

Price rises 70% → Sell 40%

Price rises 100% → Sell 90%


Always keep 10% as a moonbag


Never go all in, never go all out 


Took me one read to understand it.


Took me one crash to believe it.


Follow me - the people who do tend not to regret it

_______

Analysis: 

This framework is a structured, rules-based dip-buying + profit-taking system with built-in risk management.It combines elements of dollar-cost averaging on the way down, scaling out on the way up, and a permanent "moonbag" (core long-term position). It's emotionally helpful because it removes discretion during panic or euphoria.

Where it works well

Best suited for:

  • High-quality growth stocks or compounders (e.g., strong tech, consumer staples, industrials with economic moats, recurring revenue, high ROIC, and durable competitive advantages). These tend to recover strongly after crashes.
  • Stocks with solid balance sheets (low debt, good cash flow) that get oversold in broad market panics (2020 COVID crash, 2022 bear market, etc.).
  • Blue-chip or "inevitable" companies where long-term value is clear but volatility is high (e.g., many Magnificent 7-type names historically).
  • Assets you deeply understand and are willing to hold for 5–10+ years. The strategy rewards conviction and patience.

Why it shines here:

  • Markets overreact downward more extremely than upward. Buying bigger tranches at -25%, -40%, -60% captures the rebound when fear peaks.
  • Gradual selling on the way up locks in gains without trying to time the exact top.
  • The 10% moonbag captures true outliers (10x+ moves) while the scaling protects capital.
  • Works extremely well in cyclical bull marketsor after macro shocks that don't change the company's fundamentals.

Many successful long-term investors use variations of this (scaled buying on weakness + profit-taking on strength) for individual high-conviction positions.

Where it works poorly or can be dangerous

Avoid or use extreme caution with:

  • Weak or dying businesses — high debt, declining moats, negative cash flow, disrupted industries. A 60% drop might signal permanent impairment, not a buying opportunity (e.g., many retail, legacy media, or energy names in secular decline).
  • Speculative / momentum / hype-driven stocks (pure meme stocks, most pre-revenue biotech, SPACs, unprofitable growth names with no path to profitability). These can go to zero or stay depressed for years.
  • Commodity producers or highly cyclical stocks without strong balance sheets. Drawdowns can last much longer than the strategy assumes.
  • Illiquid or micro-cap stocks — hard to execute large buys/sells without moving the price.
  • Leveraged positions or options — the framework assumes unlevered stock; leverage amplifies the risk of being wiped out before the rebound.
  • Prolonged bear markets or structural bear cases (e.g., 2000–2002 dot-com aftermath for many tech names, or Japan-style lost decades).

Key failure modes:

  • You keep averaging down into a value trap and run out of capital or conviction.
  • The stock never recovers meaningfully — your bigger buys at -40%/-60% become bags.
  • Opportunity cost: Capital tied up in a dead position while better opportunities appear.
  • Tax inefficiency or emotional exhaustion if it stays down for 3–5+ years.

Practical caveats

  • Position sizing matters hugely. Never allocate so much to one stock that the required buys at deep drawdowns would blow up your portfolio.
  • Works best as part of a diversified portfolio (10–20 high-conviction names max for most people).
  • Requires genuine fundamental research. The framework is mechanical, but stock selection is not.
  • Backtest mentally: It would have worked beautifully on Amazon, Apple, or Nvidia through multiple crashes. It would have been painful on many 2000-era dot-com survivors or certain regional banks.
  • Market regime dependent: Excellent after sharp V-shaped recoveries. Less effective in grinding, multi-year sideways or down markets.

Bottom line: This is a high-conviction quality compounder strategy, not a universal trading system. It rewards deep knowledge of the business and emotional discipline. It fails when applied blindly to any falling knife. The billionaire likely applies it only to businesses he understands extremely well — that's the unspoken context.

Use it selectively on your best ideas, size positions responsibly, and always respect the "never all in, never all out" rule.

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