How to Sleep Like a Baby During a $1.25 Trillion Market Wipeout
Yes, you can keep both your shirt—and your sanity
Yesterday, over $1.25 trillion evaporated from the US stock market—like smoke from a cheap cigar.
That’s enough to make most people want to pull the covers over their heads and forget they ever heard the word “investing.”
In fact, there are a few simple moves you can make right now that will not only help you sleep better but also strengthen your portfolio.
1. Check Your Dividend Core: The “Steel Spine”
When the market does cartwheels, you need a steady paycheck.
Companies like Procter & Gamble (PG) have raised their dividends for over half a century (53 years!).
When the world panics, it’s comforting to see that dividend check land in your account, quarter after quarter.
What Signals Stability?
Free Cash Flow (FCF) Coverage: If a company pays out $1 in dividends, it should generate at least $1.20 in actual free cash flow. Otherwise, they might be borrowing to prop up those payouts—never a good sign.
Moderate Debt: Watch the “Debt-to-EBITDA” ratio or “Interest Coverage.” If a firm can’t cover its interest costs at least four times over, that dividend may be on the chopping block when storms hit.
Dividend Growth: A 2.4% yield that increases every year will typically outshine a flashy 8% yield that might disappear the minute management panics.
What can you do tonight to sleep better?
Sell off part of that wild tech gamble you’ve been hoping will skyrocket. Reallocate those proceeds into a fund like SCHD or a tried-and-true dividend stalwart like PG.
You’re swapping adrenaline for consistent paychecks.
2. Get Paid for Other People’s Fear with Covered Calls
When the market freaks out, the cost of options (both calls and puts) tends to spike. That’s not bad news if you’re on the selling end of covered calls.
Imagine you have a car in your driveway.
Someone pays you for the right (not the obligation) to buy it from you at a slightly higher price over the next month. If they don’t exercise that right, you keep the car—and their cash. If they do, you sell at a profit plus the extra money they gave you up front.
Think of it as collecting rent on shares you already own.
How does that work exactly?
Selling a “covered call” requires owning the underlying shares. Suppose you have 100 shares of Coca-Cola (KO) at $60 each; you can sell a call option with a $62 strike that expires in 45 days, potentially netting $150 in premium.
Two Possible Outcomes:
KO Stays Below $62: You keep the stock and the premium.
KO Rises Above $62: Your shares get “called away” at $62, but you still collect the premium. Essentially, you lock in a gain plus extra cash.
3. Get Yourself The “Black Swan” Buffer
Even if you’re a wizard stock picker, sometimes the market does a triple backflip into a kiddie pool.
You need a safety net—something that ensures you’re poised to buy good companies on sale while everyone else is selling.
10% in Cash or T-Bills: Think yields near 5%. This is your ammo when stocks go on clearance.
5% in Gold: Not flashy, but it can hold value when everything else is tanking.
5% in Long-Dated Bonds: When rates get slashed in a downturn, these can soar.
Establish a Tactical Buy Rule:
For example, decide you’ll only spend this cash if the S&P 500 falls 5% below its 200-day moving average. That’s your line in the sand.
You don’t guess or panic. You wait for the numbers to say, “It’s time.”
4. Fortify Emotionally
We’re wired to react emotionally when we see big numbers vanish. That’s normal.
Markets don’t just test your portfolio—they test you.
If you are scared easily, you might dump fantastic stocks at the worst time. Build in systems and buffers to keep that lizard brain in check.
It’s like a “no texting when angry” policy. Take a breather, and your decision-making improves dramatically.
So, do yourself a favor: pick one speculative stock in your portfolio, swap it for a dividend stalwart, sell a covered call on a position you already own, and stash some funds in T-Bills.
Then take a deep breath, maybe pour a drink, and enjoy your day.
That’s my plan for this Saturday.
Thanks for tuning in today!
Mike Thornton, Ph.D.