When enough sellers offload a stock because of their own fear of loss based on something they've heard, it will cause the price of that stock to drop. In the event of a disaster or bad news, especially on a global scale, when those sellers panic and sellout on a mass scale, stock prices plummet!
This is what causes a crash...so where does the money go?
When you really think about it - there must be someone willing to buy for a desperate / nervy investor to successfully sell their shares doesn't there?
And if a company has good management, solid financial prospects, and offers a very good ground for investing in before a stock marketcrash occurs, then what has changed about that company during and after a market crash?
For most companies like that, the only thing that changes is their share price.
For the savvy investor......this represents an awesome buying opportunity. Buy when others are fearful the Warren Buffett saying goes.
So while the novice investor dumps their stock and leaves the market once conditions become undecided or volatile, the savvy investor rubs their hands together in glee. This is the guy who loves a stock market crash, because more often than not, the volatile times are when the best bargains are to be had, just ask Warren Buffett.
Throughout a bear market, the only thing that affects a company's falling share price is the downturn in economic and market conditions. And while we as humans tend to think the good times will never end while we're in them, we also give in to the assumption that when things are bad that they will remain that way forever.
During these conditions, those who are inexperienced, impatient and fearful will often oversell their shares. So a stock market crash is really just a means for transferring funds out of the hands of those who don't know what they are doing and into the hands of those who know exactly what they are doing.
By - Anthony Manly