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."
Stepping back from statistics and the numbers, it's a general perception that stock market crashes are a response to unexpected and severe bad news. That would make sense right? The market is a very sophisticated machine whereby each individual buyer and seller trades on their information and the result is a market price that is, in a sense, smarter than any individual.
And just when you think that this may all be a bunch of bul…h…t. A free energy inventer gets a phone call from a Tv morning show, calling him raising hell on his ass telling him, that he needs to buy up all the free energy electrical devices now, the free energy inventor declines his offer, Host hangs up on him pissed and then calls him back asking him nicely if he could allow him to send him a truck to empty his entire store inventory, the owner declines. Store owner inventor is told by said talk show host, that the elites are getting everything in place to plug the plug. Its obvious that its a planned calapse. The inventor tells us that we will be needing electicity to power up devices, because he was told that the grid will go down, and obvious planned EMP ATTACK on all our major cites, “planned” it seems.
In Southern California, the pacific rim money has driven the market to a dark place. Dark in the sense that to afford an “average” home you need a household income of $170k annually and that has increased the number of people living in newly purchased homes. Chinese millionaires are dominating the market and the middle class citizens are living paycheck to paycheck or leaving California for better quality of life.
The Dow opened the year at 12,459.54. It rose despite growing concerns about the subprime mortgage crisis. On November 17, 2006, the Commerce Department warned that October's new home permits were 28 percent lower than the year before. But economists didn't think the housing slowdown would affect the rest of the economy. In fact, they were relieved that the overheated real estate market appeared to be returning to normal.
Thank you, Gord, for the insightful article. We bought our SoCal (South Bay) home two years ago and our neighborhood’s prices have soared since. We are currently looking at a potential profit of more than $350k given recent comps.. Definitely not a bad thing, but it’s creating a dilemma in our home since my husband is all about cashing out while the market is hot and renting until prices go down again. I on the other hand, am more in favor of doubling down on our home and area by converting our garage to a liveable (and rentable) unit. We really like our area and home, but the potential profit is incredibly enticing. What do you think would be the smartest move in this circumstance?
The fat-finger theory: In 2010 immediately after the plunge, several reports indicated that the event may have been triggered by a fat-finger trade, an inadvertent large "sell order" for Procter & Gamble stock, inciting massive algorithmic trading orders to dump the stock; however, this theory was quickly disproved after it was determined that Procter and Gamble's decline occurred after a significant decline in the E-Mini S&P 500 futures contracts. The "fat-finger trade" hypothesis was also disproved when it was determined that existing CME Group and ICE safeguards would have prevented such an error.
I live in a housing bubble market with everyone attempting to buy at sky high prices. I bought 4.5 years ago, and am looking at selling for over a 100% gain in that amount of time. Yes attempting to sit on the sidelines waiting for the market to change may not seem the best, but rather than being intent on jumping back into the poker game because you like the action, take your earnings off the table. Markets can remain irrational for exuberant amounts of time, but you have to weigh it out. At the moment a 30% retrace would mean I lose $140,000 worth of equity currently available. I’ll rather that liquidity in the bank any day over paying the mortgage of an asset still owned by a lender, which to me is a liability.
Dennis Cisterna III was kind enough to provide this article that discusses the key factors that drive the housing market. Dennis is Chief Revenue Officer of Investability Real Estate, Inc. and an expert on housing trends and economic indicators. I chose Dennis to write this piece because I was so impressed with his podcast interview on my show. Dennis talks about the actual numbers when it comes to new house builds, lending guidelines, and if we are in fact due for another housing crash anytime soon. I also did a lot of research on my own about lending guidelines, affordability, building starts, and other issues affecting the housing market.
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But if U.S. GDP growth were to falter -- let’s say dip to 1% or lower on an annual basis -- then it would be really difficult to support existing valuations for companies in the technology and biotech arenas. And since tech and biotech have played such a critical role over the past nine-plus years in pushing stocks higher, they could easily be responsible for dragging the stock market into a correction.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. Crashes are often associated with bear markets, however, they do not necessarily go hand in hand. The crash of 1987, for example, did not lead to a bear market. Likewise, the Japanese bear market of the 1990s occurred over several years without any notable crashes.
At first, while the regulatory agencies and the United States Congress announced investigations into the crash, no specific reason for the six hundred point plunge was identified. Investigators focused on a number of possible causes, including a confluence of computer-automated trades, or possibly an error by human traders. By the first weekend, regulators had discounted the possibility of trader error and focused on automated trades conducted on exchanges other than the NYSE. However, CME Group, a large futures exchange, stated that, insofar as stock index futures traded on CME Group were concerned, its investigation found no evidence for this or that high-frequency trading played a role, and in fact concluded that automated trading had contributed to market stability during the period of the crash. Others speculate that an intermarket sweep order may have played a role in triggering the crash.
Perhaps the likeliest reason for the next stock market crash could be an escalating trade spat between the United States and China. After the U.S. initially placed tariffs on $34 billion worth of Chinese goods, China retaliated with tariffs of its own on an equal value of imported U.S. goods. Now the two sides are threatening to one-up the other with tariffs.
Hi Sandy, I was just reading a post on Bnn.ca about how happy a couple who invested in rental housing investors were. They got their mortgage paid off and were living a lifestyle with retirement they couldn’t get any other way. If you’re becoming a landlord, make sure you do tenant screening really well. The economy in the Hamilton area and the housing market have been the best anywhere. It’s an excellent area with the escarpment and everything. Assuming you can afford the property, there are plenty of high paying tenants available. The rental squeeze won’t end, so you can pick and choose. Long term, it’s the smartest move to make. Unless, your tenant is prone to financial difficulty. One room for yourself? You’d better make a separate entrance thing, do it right, and it should change your life. Take a look at my posts over at ManageCasa and get immersed in the world of property management. Even if the market collapses, you’ll likely be fine if you manage your finances well. You can afford this right?
Bush came into office just as the terrorists mounted their attack. Clinton was the President previously. I think Bush was stunned at the attack just as he was sitting down in the Oval Office. Are you suggesting they attacked because of what they thought Bush might do in future? Half of the debt came with Obama so why is he innocent of all this? Why couldn’t the trillions dished out be tracked? Wouldn’t it have been better spent on badly needed infrastructure spending? Joe, I’m not sure you have a good argument here, but thanks for contributing.
"We don't know who is to blame here; it's a little like trying to find what or who is responsible for the dangerous hurricane in Florida today," says Chris Rupkey, chief financial economist at MUFG, a Tokyo-based global bank with offices in New York. "But make no mistake about it, the stock market decline, triggered perhaps by rising bond yields, is just as dangerous."
Other scientists disagree with this notion, and note that market crashes are indeed “special.” Professor Didier Sornette, for example, a physicist at the Swiss Federal Institute of Technology, argued that a market crash is not simply a scaled-up version of a normal down day but a true outlier to market behavior. In fact, he claims that ahead of critical points the market starts giving off some clues. His work focuses on interpreting these clues and identify when a bubble may be forming and, crucially, when it ends.
This does not mean that successful investing is impossible; only that the more we learn about market behavior, the more it seems that trying to deal with uncertainty is more important than pretending that we can have any certainty. More precisely, managing risk seems to be a better approach to investing than concocting forecasts on asset returns. This could mean, for example, finding ways of identifying when market participants start to align on one side of a trade by measuring correlations, or measuring returns to flash a warning when they start growing at “super-exponential” rates.
The share price of DHFL plunged as much as 60 percent to hit a fresh 52-week low of Rs 246.25 amid high volumes before paring losses to end down 43 percent. Yes Bank slumped as much as 34 percent before recovering to close down 29 percent. Stocks of Indiabulls Housing Finance and LIC Housing Finance were also down by over 20 percent and 15 percent, respectively, at one point. Shares of Bajaj Finance and Bajaj Finserv too took a hit.
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.
Now is the time to make sure you have a portfolio that you could live with through a crash. A typical crash will feel very different if you are 100% invested in stocks, than if you have some of your portfolio invested in bonds and other assets. The time to work out the right allocation for you is now, if you determine that you should not be completely in stocks but would rather have a 60%/40% stock/bond allocation, then it's critically important to determine that before a crash occurs. If you don't, you'll experience the worst of both worlds. You'll likely see the greatest losses during the crash, but also fail to benefit fully from any recovery. If you prepare ahead of time, you'll be better able to ride out any market events.