Though we don't know what will motivate a future market crash, it's likely to be something that will ultimately be recovered from if history is any guide. The economy and society are very flexible. Industries, and even countries, can rise and fall over time, but if you have a global, well-diversified and lower cost portfolio, then you should be well-positioned. This is an area where diversification helps. If you spread your bets it will likely help. You'll probably find that the next crisis centers on a specific country, part of the globe or investment theme. If you've spread your bets through diversification, then you'll undoubtedly have some assets that fall in value, perhaps alarmingly, but often certain assets can do well during certain crises such as high-quality bonds, more defensive or inexpensive parts of the stock market, or commodities including gold.
According to Lee, there are two key factors that will soon bring more institutional interest to the markets. First, it will be the upcoming launch of the digital assets platform Bakkt by the operator of major global exchange New York Stock Exchange (NYSE), Intercontinental Exchange (ICE). Announced in August this year, Bakkt recently confirmed a “target” launch date for Jan. 24, 2019.
Hi Gord. Thanks for this informative piece. Its best info I’ve found on the net. I plan to invest in a $250K – $300K property in Ontario without living in it as I am in UAE. Which town of Ontario do you suggest I should invest in to keep my rental income coming, along with chance of property appreciation. Toronto is surely very expensive now so we are think about these towns: Oshawa, Guelp, berries or Milton…what would you do if you had this much of savings and wanted to invest in Ontario Market for 2 years
There are a few things to bear in mind here. The first is that investors can overestimate their ability to endure losses during the good times. So be a little more conservative in your allocation than you might think. Also, it's not just about having nerves of steel, it's also about how soon you'll need the money in your portfolio. Even if you are a fearless and disciplined investor, it doesn't matter if you need to spend down a big chunk of your portfolio each year. Regardless of your temperament you'll be a forced seller in a weak market, and therefore, considering having some of your assets more conservatively positioned so that they are a more robust source of cash when you need them can make sense.
To be able to make good decisions amid a stock market crash, investors will need to be able to remain calm. As Buffett has said, "Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
When markets are very volatile, the overall trend tends to be down. So what investors should be hoping for are extremely boring days on Wall Street when not much happens. That has been the usual state of affairs for much of the past decade, but now volatility has returned with a vengeance. The following is how CNBC summarized the carnage that we witnessed on Friday…
It is well documented that prices tend to go up faster before a crash. This may seem counter-intuitive, but it makes sense in terms of “rational expectations.” For investors to remain invested in a market that is becoming more risky, prices have to rise faster in order to compensate for the growing probability of a crash. Otherwise, people would exit the market earlier and a bubble would never form.
— The Big Picture is Being Obscured By Short-Term Fears. "Animal Spirits" are ruling the stock market. Millions of investors are afraid that the torrent of cash created by low interest rates, hefty piles of corporate reserves and even more giveaways in the new U.S. tax code won't be enough to juice up a world economy (outside of the developing world) that may be slowing down.
"I've been in retailing 30 years and I have never seen any category of goods get on a self-destruct pattern like this", a Service Merchandise executive told The New York Times in June 1983. The price war was so severe that in September Coleco CEO Arnold Greenberg welcomed rumors of an IBM 'Peanut' home computer because "IBM is a company that knows how to make money". "I look back a year or two in the videogame field, or the home-computer field", Greenberg added, "how much better everyone was, when most people were making money, rather than very few". Companies reduced production in the middle of the year because of weak demand even as prices remained low, causing shortages as sales suddenly rose during the Christmas season; only the Commodore 64 was widely available, with an estimated more than 500,000 computers sold during Christmas. The 99/4A was such a disaster for TI, that the company's stock immediately rose by 25% after the company discontinued it and exited the home-computer market in late 1983. JC Penney announced in December 1983 that it would soon no longer sell home computers, because of the combination of low supply and low prices.
The crash of 1929 involved a total stock market collapse, whereas, during 1987 stocks remained in a bull trend despite the 23% decline. The bursting of the Dot Com bubble in 2000 doesn’t appear very pronounced on the above chart. However, remember it is a chart of the Dow Jones index, which only includes 30 blue-chip companies. If you look at the tech heavy Nasdaq for the same period, you will see a very different picture.
When legions of investors try to sell, that causes further panic in the markets, and can lead to investment companies issuing "margin calls" -- calling in money lent to investors so they can buy stocks and funds -- which forces those investors to sell at current (usually low) prices to get their cash reserves to satisfactory levels to meet those demands. Over the decades, many investors have gone bust over stock market crashes --when supply trumps demand and there are more sellers than buyers.
Market crashes are far more common in our imagination than in reality. This is because they are vivid and scary events. Given our evolution, we are wired to worry about these sorts of vivid events. While, this may have been useful in helping us avoid getting eaten by tigers, it's less useful for rational, disciplined stock market investing. By thinking this topic through now, hopefully you're a little better prepared when the next crash hits.