|2009 Market Crash|
And below is how the market looks in 2017. There have been at least a few times when the S&P 500 has gone below its 50 day moving average (the yellow line).
However, the long-term trend, the green line is still trending upwards which indicates that bull market is in fact still intact.
|2017 Market Snapshot|
It only takes a small catalyst to bring down a weak market. The catalyst can be anything from a political uncertainty to a broader geopolitical event.
It Will Be All Okay In The Long-Term,
But Only If You Buy High Quality Investments
I often hear from investors to not worry about the buying price of a stock or an impending market crash as in the long run it will all even out and prices will recover and even grow another 10%-20%.
The problem I see with the above thinking is that it is mainly true if you own high quality stocks. When market is at all time high, people have tendency to become more complacent and buy low quality investments such as high dividend stocks or high yielding junk bonds.
If you get caught holding such low quality stocks during an economic downturn or a recession, there is a high probability that those stocks may never recover from the downturn and end up going to zero (bankruptcy) either during or soon after the start of a recession.
There is currently a herd mentality that has taken over the bitcoin and cryptocurrency markets. It has resulted in sky rocketing of these currencies' prices and a bubble has formed.
There are currently over 1000 cryptocurrencies out there and more on the way.
Essentially, anyone can create their own version of a cryptocurrency by signing-up with one of the services that give you everything you need to start your own currency.
How do you know which one to buy? You can go with the popular ones. But popularity can change pretty quickly.
The entire cryptocurrency scene reminds me of the dot.com bubble where .com companies were springing up left and right and people were buying stock in those companies hand over fist in hopes for making big.
Investing in cryptocurrencies is not investing. It is gambling folks! And, we all know how it all ended in 2000.
To be clear, I'm not saying all cryptocurrencies will die or are a fad, what I am saying is that the current expansion in cryptocurrencies is unsustainable and mainly driven by a herd mentality without a stable intrinsic value. This is also why these currencies are so volatile.
There is no central regulation of these currencies which makes them unstable and susceptible to fraud and unsuitable as a legal tender.
I believe it is more prudent to invest in the technology behind cryptocurrency rather than the currency itself. The technology behind cryptocurrencies is Blockchain. There are several well known companies that are providing hardware and software to enable and improve blockchain technology.
Blockchain has application well beyond cryptocurrencies and if I were to invest, it would be in companies that enable blockchain and not the currency itself.
Before investing in the current market, one should ask themselves the following questions:
1. How do I feel about overall economy? (Feel Good = Yes, otherwise= No)
2. Do I feel my job is safe, even if we hit a recession?
3. Can I hold-on to my investments even if they remain underwater for 5 to 6 years?
4. During a downturn, would I be able to keep my investments intact, even if I lose my job?
5. Do I have enough cash to buy investments during a downturn or a crash?
If the answer to any of the above questions is 'No', then one should not be investing in the current market outside of their retirement accounts.
What history tells us is that market does not go down in one swift move. Market will give us ample warnings in the form of dips and quick but incrementally weaker recoveries before taking a final plunge.
Nobody knows how many of these warnings we will get before the final plunge, but one thing for sure, in the short-term (six to eight months) there is a greater downward risk than upward opportunity.
It is difficult to time or predict when market will go down, all we can do is carefully watch market fundamentals and prepare our portfolio to manage the risk by only buying high quality investments at fair or below fair value and by keeping ample cash on the sidelines to benefit from any impending market plunge.
Disclaimer: Author of this article is not a licensed/registered financial or investment adviser and does not provide investment advice. Any mention of stock names/tickers in this article or website is not a recommendation to buy or sell. This article is for informational and entertainment purposes only. Full disclaimer can be read here: Full Disclaimer