Where to put the money safe if you think a crash is coming

An interesting discussion. Is it right to conclude then that by and large, the best approach to take is to ignore any potential 2008 event and carry on regardless - so long as you're prepared to stick with it long term and ride out any black swan events?

Is there no value in gearing down equity percentage a little so that if the market crashed, you would have a pile in a less risky class (eg. bonds) to invest in those firesale stocks post-crash?
 
moneymakeover said:
It was obvious back in 2008 when p/e was through the roof that equities were overpriced.
Click to expand...

It is even more obvious that equities are overpriced right now - the markets are in a classic bubble. Stock valuations are too high. A reversion-to-the-mean event would necessitate a 40-50% plunge just to get back to historical 'normal'.

The markets will crash on November 29th, 2018 at 11.02am...just joking. But I give it 0-24 months before we're in severe correction territory.

This post isn't investment advice.
 
opexlong said:
The markets will crash on November 29th, 2018 at 11.02am...just joking. But I give it 0-24 months before we're in severe correction territory.
Click to expand...
What are you using to determine that equities are overvalues? And how long do you think that the markets have been over valued for? The price earning ratio of the S&P500 is approximately 24.75. Te P/E of the S&P500 has been a lot higher in the last 20 years.
 
Nickname I'd look at Buffett indicator and also Price to Sales ratio as it is now compared to previous years. PE ratio has been higher three times* in the last twenty years, twice during bubbles in 1999 and 2009 followed by steep falloffs. Corporate share buybacks and insider sellofs are a huge red flag also.

* By three times I mean three contiguous upward spikes - look at a S&P PE ratio historical chart.
 
  • My question was what you are using to determine that the "stocks valuations are too high"? And when did the valuation become too high?
  • Re PE valuation I am just using this as an an example, you are right that by itself it is not a good metric.
  • In 1999 the S&P PE went from about 25 to 32 in the space of a year - then dropped off then went back up higher two years later. 2007/2008 was something different drastic increase followed by a drastic drop also relative to the entire history of the S&P500 PE it is so out of proportion - this is not what has happend in 2018 it has been a gradual increase over several years and the PE is no where near 2007/2008 levels.
  • https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart (Link to chart - 2018 value is a little low than actual, but set this to 20 or 30 years and doesnt seem like 2018 S&P PE is that different to historic values)
  • Agree re share buy backs increasing the price of shares artificially, but the reason there is so much share by backs is because of such large profits being posted.
  • Re "classic bubble" - it may be a bubble what is driving the bubble?
  • If there is a crash it will be psychological, "longest ever bull market - SELL, SELL, SELL!!!". For buy and hold investors I think there is no reason to panic.
 

Best Buffet indicator is what he said 12 weeks ago - "Stocks are not in a bubble"

47 seconds in for the impatient - https://www.youtube.com/watch?v=uGSHJaVbRrE
 
letitroll said:
Best Buffet indicator is what he said 12 weeks ago - "Stocks are not in a bubble"
Click to expand...

Fair enough. I respect Buffett's opinions greatly.

Note that Buffett turned his investment portfolio into cash in 1969. After the 1973-4 crash he went back into stocks.
 

I keep believing that the crisis of 2008-9 changed the game forever. Until then the Banks were seen as safe nest for the savings. After that, and with the rates so low, everyone started building more courage into investing long term. I really don't see a huge bear on the way, but a strong correction/bearish lowering of values next year and then a new cycle starts again...
 
About the bubble being caused by Corporate and Consumer debt this may be true but i would like to see data to back it up and see how the increase in equities correlates to corporate or consumer debt.
Click to expand...

I don't have this data to hand. I'll see if I can find this or compile it myself maybe. Many articles been written on these topics in recent years.
 
The market can stay irrational, longer than you can stay solvent - JM Keynes

The only issue that matters is how a market crash (and one will occur, we just don’t know when) might impact you personally in the short term.

So let’s break that down into its constituent parts with an example.

A Colleague in their late 20s started her first pension today. Contributions from salary plus tax relief over say 35 years.

Starting value nil
Market exposure nil
Risk from market fall nil

Correct investment strategy 100% equity

Why, because a market crash would be awesome for them. The best thing that could happen. Bring it on 1987, 1929! Would be wonderful news.

Let’s wind into the future say a year and let’s say they have paid in €5000 and let’s say that the maket drops 50%

Loss €2,500. But they can’t retire for 34 years so not really too much to worry about. How does this impact them personally in the short term? Emotionally maybe but not really financially.

Market then does what markets do and goes back up again.

Still saving, still adding every year

If you save consistently the order in which the investment returns arrive has no real bearing on your final investment value.

However, if you are aged 60 with a €250,000 pension fund and nothing else and you’re 100% invested in equities then yes, you would be impacted very significantly by a market fall. You do need to be more diversified.

Let’s say you’re aged 60 with a €2m pension fund, your spouse has a defined benefit pension with a guaranteed income of €80,000pa and you both have full state pension entitlements. You have savings of €500,000 and a house worth €1m with no mortgage.

A market fall might set you back a little but would it really impact you in the short term? Not really. You could afford to defer the pension and wait it out.

This is the concept of risk capacity.

The first investor, is real and happened this morning, has the capacity to load up on risk because it would have no material impact on their financial position.

Likewise, the last example had the capacity to bear investment risk simply because it would not have a material impact on their short term position.

The middle example lacks the capacity to take on high levels of market risk, even if they thought they wanted to. It doesn’t make sense objectively for them to do so.

So, if you are worried about the next market crash, think about how it would impact your short term financial position and use that to make your decisions rather than worrying about if the market is too expensive.

The maket climbs a wall worry...

The 4 most expensive words in the English language “this time it’s different”

“Nobody knows nothing” jack bogle

“The only value of stock forecasters is to make fortune-tellers look good."

"My favorite time frame is forever."

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."

“I can't recall ever once having seen the name of a market timer on Forbes' annual list of the richest people in the world. If it were truly possible to predict corrections, you'd think somebody would have made billions by doing it."

“What to do when the market goes down? Read the opinions of the investment gurus who are quoted in the WSJ. And, as you read, laugh. We all know that the pundits can't predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven't got a clue."
 
Last edited:
The Buffett indicator is the U.S. stock market capitalization-to-GDP ratio (the total value of the U.S. stock market divided by the GDP), which Buffett called “probably the best single measure of where valuations stand at any given moment."



Another user has posted a video interview with Buffett where he's asked if stocks are expensive and he carefully says that they are inexpensive relative to 30-year bonds at 3%. That statement doesn't contradict a bearish view, since he's just saying you can use long time horizons in stocks to get to gains of 4% or more. Fair enough if that's your investment strategy (and it seems to be almost a consensus view around here), but it doesn't directly contradict the opinion that stocks are overvalued right now.

It's also not the last word on how Buffett sees investing. He applied the Grahamian value investing method to stocks in the 1960s. In the late 60s it had stopped working for him because the stock valuations had gotten so high that there were no more "value stocks" (i.e. undervalued stocks). So he closed down his investment portfolio in 1969 and turned it into cash. After the 1973 oil crisis and market meltdown he got back into stocks, buying up bargains.

Warren Buffett--In 1974
 
Last edited:
@opexlong but if you look at your graph of buffet indicator it was below 0.6 until the mid 90s, then it has always been above that even during the two once in 60 year crashes we have had since then, it touched off 0.6 briefly in 2009 when buffet was out aggressively buying stocks. If you extrapolate your graph taking out the big peaks of 2000 and 2007, the buffet indicator should be at 1.0 as it has been rising anyway. Anyway 2007 was not a big peak in stocks, it was the housing crash that did the harm, it was much better then to have been invested in stocks than in property (although banks were also really part of the housing market so they also did not recover). The stock market recovered very quickly whereas the housing market took a decade and many people with big housing debt never recovered. At least stocks are most bought with real money whereas property is mostly bought with debt which explains why 2008 was so devastating for most people but not really for the stock market investors. Even the 2001 crash was only really devastating for investors in the dot com companies everything else recovered quickly. Therefore invest in areas that are not overvalued, stay out of technology, invest in Europe and emerging markets and even there I say Irish banks.
 
Mod Note:

Posts over the last number of days have been temporarily removed and are being reviewed by the Mods. Please refrain from discussing individual shares which is in breach of posting guideline 11:


11 We don't discuss individual shares

You won't find any messages suggesting investing in CRH or asking if AIB is a good investment. It is not the purpose of Askaboutmoney. We don't facilitate stock tipping or speculation about the future performance of individual shares. There are other forums which discuss individual shares such as The Investments and Markets Forum of boards.ie

This guideline does not restrict you from discussing
1) the mechanics of buying or selling shares in a flotation
2) Rights issues - pricing and mechanics
3) Dividend Reinvestment Plans - pricing and mechanics
 
You must log in or register to reply here.
Menu
Log in
Register