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Are You Ready For The Next Market Crash?

April 17, 2013 | About:
Intelligent Speculator

Intelligent Speculator

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The other day I read a very interesting piece of data… if you look at the US markets over the past century or so, every strong rally has had some kind of dip at some point. There have been a dozen or so times where the markets have increased by 100% without a 20% setback. Just look at this chart:

bullmarkets.jpg

Now take a look at that last column… At some point, we will have a major correction. On Monday, we had a good look at what markets could be like with almost everything plunging:

SPY.png

If markets were to decline by 30-40% or even more, there would be many more such days. If you’re doubting that it will be coming.. Just think about it. The markets are at all-time high’s but the economy remains depressed in many ways. Unemployment remains high both in the US and Europe, growth is not exactly what you’d call “strong” with the EU expected to contract again this year, a slowing China, etc. Banks around the world are struggling with some in Cyprus even funding their bailouts with their shareholders money.

Gold Might Not be Your Refuge

A lot of gold bugs think it is the ultimate protection against inflation, falling markets, etc. It has been doing very poorly in recent weeks and broke past the psychological $1500 level:

GLD.png

gold.jpg

So how should you prepare yourself? One clear way is to own dividend stocks which tend to do better than the overall market in market crashes/setbacks. I feel confident that a portfolio like the USDP would outperform the overall market in such a context.

Another question to ask yourself of course is how well you could support such a loss. Obviously, no one would be happy about such a loss but I think it’s important for everyone to be able to support such a loss. If you are retired or close to it, it’s important to be comfortable with how much money you have “at risk”, in the markets.

What are your thoughts on this market? Do you think it’ll be higher or lower by the end of the year?




Rating: 1.6/5 (7 votes)

Comments

mocheng
Mocheng premium member - 1 year ago
good article, most experts including warren buffett thinks the economy is recovering, yes, the stock market was a little crazy recently, but doesn't mean we are going down to bear market.
hasagos
Hasagos premium member - 1 year ago
I don’t understand articles such as this. Who cares if there is a crash? Anyone who buys anything in a market knows that prices can fluctuate at any time on the whims of human emotions. If people want to be dumb and bid down asset prices to absurd levels, this should be considered an opportunity for true investors, as well as companies which can buy back their own stock.

The higher the Dow goes, it seems the more people I hear talk about the market crashing, as though that ought to drill the fear of investing into people. Setting aside that valuations in many areas of the market are by no means in a bubble – if there was a crash, it would be met by an infinite tsunami of dollars from the FED. Good luck fighting that over the long haul. Selling quality assets (assuming the investor has done his/her homework) in exchange for an asset of questionable quality – paper currencies, seems an iffy proposition to me.

Personally, I was fully invested in the last crash, and have no problem whatsoever being fully invested in any future crashes. I think that people who can’t deal calmly with the mass psychosis of the investing public at large, are probably not suitable to be investors anyhow. In fact, these people scare me, cause they tend to end up ultimately blaming their own fear-driven actions on conspiracy theories and other absurdities.

If someone offered me $1 for my house I would laugh at them. If someone offered me $1 for a share of a company worth $50, I would laugh at them as well. I wouldn't panic and look at it as though I have suffered a "loss", I would laugh at the comedy of the situation.

cdubey
Cdubey premium member - 1 year ago
@Hasagos: I agree completely.

The line at the end was enough to put me off. I don't think of where the market will be at the end of the year. I hope it is going down. That would let me buy things for cheap.

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