The market is going to crash.
Well sooner or later.
But what happens in a market crash? Are you prepared?
The answer to this simple but important question depends on who you are asking.
For a Short Term Trader long on the markets, the answer is something like “I’m about to be wiped out”.
(FYI if you want to become super wealthy by trading, remember the number of day traders on the Forbes Richest List is…zero)
For a Medium Term Investor (investment horizon of 5 to 6 years), the answer will shift focus to the severity of a market crash instead of focusing on a binary event. After all, a 20% correction is small when you put it into perspective of a 5 year timeframe. That’s because markets can easily move +/- 20-30% in any given 5-6 year timeframe.
You can see exactly what I mean by reading Active Value Investing by Vitaliy Katsenelson.
But if the correction is 2008-2009 recession like, resulting in 50-60% drops, you’ll be underwater for many years before breaking even. And it’s going to be a painful process because a 50% drop means a 100% appreciation is required just to get back to your starting point.
I am Long Term Investor.
That’s right.
A boring, non-glamorous & “lazy” person who invests for decades & not just years.
Because of such long investment time horizons, I prefer to stick with proven businesses paying good dividends; an approach perfected by the likes of Warren Buffett & someone even wealthier than Buffett.
A long term investor’s focus on dividend stocks is very different to short-term and mid term market participants.
I’m laughing when others cry.
I cry when others laugh.
But before giving out the names of 3 stocks you can buy blindfolded in the next market crash, let’s see how a long term dividend investor views a market crash.
What is it about dividend stocks and long term investing that is ridiculed by shorter term investors?
For starters, I get that dividend stocks are considered as defensive stocks.
These are stocks that don’t move up or down a lot. When markets head south and everyone else is panicking about the decline in their portfolio, dividend investors see the market crash as an incredible opportunity to buy quality stocks at distressed valuations.
Mr Market is having a garage sale where he is selling quality stuff along with the junk. The beauty of this ideas is that, quality dividend stocks gives you direct access to the growing cash the company is able to generate.
Let me show you the power of dividends.
It took the market more than 25 years (from 1929 to 1954) to get back to the levels achieved before the 1929 crash.
Now if you include dividends into the picture, the story is different.
In the same 25 year period, a dividend investor would have converted a $1,000 portfolio into $4,310.
An absolute return of 331% or compound annual growth of 6.02% compared to 0% without any dividends.
If you follow the dividend strategy and people laugh at your for holding boring stocks, you’ll the one laughing many decades later. Manage dividend stocks in a tax free account, and you’ll be laughing so hard your stomach hurts.
Boring is beautiful but people are deprived of proper data and perspective. If practiced well, dividend investing is an effective strategy for bear markets.
But with the market giddy at all time highs, the question is how to determine whether the market will crash soon.
A stock market bubble is harder to spot than you think but market bubbles repeat.
But here are some market crash indicator tips.
Tip #1: People who’ve never shown interest in the markets just want to talk about the stock market.
Examples: moms, your mom’s circle of friends, your wife, your wife’s circle of friends.
The common theme is that these people think it’s so easy to make money in the stock market because they see images like this.
Tip #2: TV business channels or business newspapers proclaim a target for the Dow Jones or S&P500.
These predictions are made by people in the brokering business and make money when people buy stocks. Conflict of interest here.
Tip #3: There is euphoria and a general a sense of over-optimism. Mind you, this euphoria is not backed by adequate growth in underlying earnings or business growth.
For mathematical indicators, gurufocus has a page dedicated to the stock market valuation.
But…
What good is an opportunity in hindsight?
Created by Tan KW | Oct 23, 2018
Created by Tan KW | Jun 14, 2018
Created by Tan KW | Apr 20, 2018
Lately you see market bullishness like never before! The announcement that china 1st quarter only grow 7.4% yet so many analysts spin it put final nail on the coffin that this is nothing more than final breath of the bull! Maybe bull will run a week, a month, few months but for certain the crash will come. 50% discount! Bloodbath!
2014-04-22 00:28
Hi fortunebullz. I'm just curious. I have noticed that you are saying quite a few times that the market will "crash". If market "correction" I can understand. How do you constitute that the market will indeed crash? And if you don't mind, what is your current investing/trading strategy during these times?
Thanks!
2014-04-22 08:55
Be careful don't mistake crash as correction, the crash this time can be very serious .
2014-04-22 09:10
Big sharks won't let market to crash easily, they have not earned enough from emerging markets.
2014-04-23 08:20
FOR KLSE ONLY 3 QUALIFIES AS HIGHEST DEFENSIVE SHARES
1) MUI BERHAD
2) MP CORP
3) MPHB CAPITAL (SEE COMMENT)
2014-04-23 12:49
If trading on dividend stocks, I might as well put it into Amanah Saham Malaysia or keep it in the EPF. Its supersafe unless the country go bust.
2014-04-23 14:28
diam la Calvin. All your counters are crap class 3.
why not NESTLE, DUTCH LADY? That is super defensive.
Don't talk like you know the big boys game.
2014-04-23 22:50
n00bpelabur
Do you know the only thing that gives me pleasure? It's to see my dividends coming in.
John D. Rockefeller
2014-04-21 23:43