The old saying is to be careful what you wish for.
For months, the mainstream said stocks were too expensive.
They said the stock market needed a correction.
They said that would be good news.
Well, now the correction has arrived. The Australian stock market is down 6.8% since the start of September.
Free Reports:
You’d think the mainstream would be happy. But they aren’t. Now they’re worried stocks will fall even further — that a full-blown crash is on the cards.
Does that mean you should sell stocks and wait for things to get better?
You could. But history suggests that selling and waiting isn’t always the best move…
There is a simple way to look at the market when stocks fall.
It involves looking at the short term moves to see how they impact long term returns. Here, we’ll explain.
The first step is to look at history.
History doesn’t tell you everything, but it gives you a clue about how things tend to shape up over the long run.
What it shows you is that big events do happen. If you haven’t prepared for them, they can do damage. But what history also shows is that it pays not to panic.
As we’ll show you now, while a stock market crash isn’t pleasant, it’s not the end of the world either.
The simple fact is that stock market crashes scare most people because they didn’t expect them.
And while we try to warn you to be on your guard, we’ll admit that it’s tough to pinpoint the exact date and time of the next crash — although that won’t stop us trying.
It’s hard to predict a crash. That’s why we repeatedly advise you to split your savings into ‘safe’ money and ‘punting’ money.
I hope that you’ve heeded that advice. If you have, then you shouldn’t have too many worries about the current direction of stocks.
The 6.8% fall since the start of September should only worry you if you’ve ignored the advice and invested all your money in the stock market.
But worrying about a stock market crash is only part of how most investors get into trouble. The other part is how they react when stocks fall — whether that’s a crash, correction, or common-all-garden, short term blip.
As the following chart shows, for all the worry about buying stocks in September (reputed to be one of the worst performing months for stocks), the reality is that it’s not actually that bad a month to invest.
If you only ever bought stocks on the first day of September each year for the past 21 years, you would have actually done well from stocks.
The only time you would have lost money if you bought stocks in September and held through to today is if you had bought in September 2007. That’s pretty good over a period of 21 years.
And that’s despite the fact that stocks have fallen in almost half of those Septembers.
What we’re getting at is that, even though the news may look bad in the short term, longer term it may not be as bad as it appears.
But this isn’t just a history lesson. This isn’t just about buying an index and doing nothing else. There’s more to it than that.
This is also about the opportunities you can miss if you turn your back on stocks. Because the fact is that regardless of the market’s daily ups and downs, companies large and small are innovating and selling and trying to make people’s lives easier (while at the same time making a profit).
For instance, take this report from Bloomberg yesterday:
‘Work starts this fiscal year on the magnetic levitation train link between Tokyo and Nagoya, which will run at 500 kilometers (311 miles) per hour…
‘The maglev will more than halve travel time between Tokyo and Nagoya, Japan’s third-largest city, to 40 minutes for the 286-kilometer journey when it opens in 2027. The line uses magnetic power to propel trains that float above the ground, traveling at almost double the 270 kph of current bullet trains between the two cities.’
Granted, this ‘maglev’ link is still 14 years from reality. But that’s not the point. The point is that things are still happening…even while stock markets are taking a beating.
Businessmen and entrepreneurs come up with ideas like this all the time. And for the most part, these ideas need investors to make them happen.
Those investors who choose to sit on the sidelines waiting for the volatility to die down will miss these opportunities. It doesn’t mean you should invest in the ‘maglev’ or anything else that’s on such a grand scale. There are plenty of investments in Australia that are worth the risk.
You have to ask yourself, is this the big crash the mainstream has predicted almost every month for the past six years?
Or is the great asset bubble still in full flight, with merely a pause before the boom resumes its run?
It could be either, but we’re betting on the latter. When markets crash it’s almost always down to one thing — a money crisis. In this instance, it will need to be a US dollar crisis.
Until that looks set to happen, we’ll keep taking note of the crises hitting the market. But unlike most, we’ll see these crises as opportunities to buy rather than sell.
Cheers,
Kris+
The post The Stock Market is in Big Trouble; Will it Get Worse? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
