How to prepare to the possible future crash?

What this Australian professor is saying that we are now facing is a really huge crisis with unemployment skyrocketing and no good prospects for the developed world in the next ten years:

my personal opinion is you watch too much of such stuff. it just gets you paniced all your life long, because there is no such thing as a time where noone forecasts the financial apocalypse.

the next crash comes for sure. and so does the next bull market. repeat.

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you can also brose the MMM investment forum, you will find an overwhelming amount of threads with such content.

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I’m not convinced in anything, I’m looking for an answer that makes sense. And the more I learn, the more complex the whole thing seems and the less inclined I become to invest at this moment of time. However I would like to see the convincing opportunities that can be taken advantage of.

I also understand that my ignorance can be irritating to people on this forum who know so much. I’ve got into this topic just several months ago, so I try to learn all I can without having any economics background. And it seems like that there are really lots of disagreements within the economics and investing communities unlike the exact sciences. And lots of very weak arguments building on the evidence of like 100 years and making decisions about cycles by having seen just a couple of the iterations…

alright you actually got me here. i do apologize for suboptimal posting. i removed the according part from my previous post.

i hope we can benefit from each other still more!

what i still mean as such is that (and this is my personal opinion) many many people get into this downward spiral of reading up/ listening to content about how bad the future is going to be, and then for reassurement just consume more of it.
these negative contents have always been around, regardless of the status of markets, and keep people feel shitty. I do have that nice position saying “i decided to execute a plan regardless of what happens” (passive indexing according to my IPS), so i feel that getting influenced by market gurus is a waste of my life time. first, there is a guru for any opinion out there, and second they won’t affect my investments.

i do encourage you to keep educating yourself regardless of comments such as i just removed from my post :wink:

Thanks, I’ll keep learning :thinking:. Hopefully I will also get on the right track eventually after having consumed enough of some nonsense, which I’m anyway trying to filter off according to my humble abilities…

I think it’s ok that you read and watch a lot to be smarter. What can be a bit annoying is that you post these complex things that require deep understanding, and at the same time you post things like this:

Personally I am not even trying to understand the market. My engagement in investing is based on a premise that the World is constantly developing and we will be in a much better place 50 years from now. Sure, there will be ups and downs on the way, but the more accurately you try to predict them, the more complex it gets. There are people who do nothing else than this, they do it for living, and they manage billions of dollars. So I don’t stand the chance.

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I do not see why managing billions of dollars is an advantage for them. Sure, it is a big advantage for the wallet of the portfolio manager (the bigger the assets under management, the juicer the fees for him), but managing billions and more restricts severely your horizon of investment securities.

Another point you largely discount is that for institutionals, the biggest risk is not tied to the market or some company : it is by far career risk; if they diverge too far from the common mindset in their securities selection and subsequently fail (whatever that means, failure could just be lagging the market for two following years), they are fired. But it they herd a lot like everybody, even in case of failure they’ll be alright because, hey, everybody else is doing the same (social proof bias).

I’ll grant you that very successful investing takes a lot of time (especially in due diligence), but we live in a world where it has never been easier for the outsider to invest successfully.

When I say “easier”, hear me out, i just mean there are very low barriers to entry. But you still need to learn, read a lot, and yes, work a lot as well.
But think about it : you can easily learn and master accounting online or with books.
You have all the financial reports available at the SEC.
You’ll learn more about investing on the website of Sanjay Bakshi for free than in any costly MBA program.

The hard part afterward is to think.
The second hard thing, as Charlie Munger says, is that “the iron rule of investing is that only 20% of people can be in the top fifth.”

So it is perhaps a hard undertaking, but by saying “I don’t stand a chance”, you make a big favor to everybody else :wink:

However I agree with you when you say that it is not wise to try to predict the market. The more I read, the more I realize that a big bunch of successful investors do not try to predict what will happen. What they focus on instead is:

  • what is the consequence if i am right (how much do i win)
  • what is the consequence if i am wrong (how much i lose)

So for the nerds, they focus on having a convex payoff : “Head I win, Tails I do not lose much”
This is often materialized in the term of “margin of safety”. How much can I be wrong before it starts hurting a lot?

And finally, since @Knoch does not seem to be at ease with just indexing with low cost ETFs, here are two path that he can dig into :

  • buying cheap tangible assets (the Ben graham way)
  • or buying outstanding businesses (i.e that have a steady high return on invested capital) at a fair price (the Buffett way).

But beware, because as said earlier, both of these paths take much more time than indexing.

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Despite the “it’s not wise to try predicting the market” I’m still searching and thinking a lot about this topic: how to prepare and thrive through another asset sell-off.

Here the latest piece of information which I deem highly relevant and interesting to share on this forum. Ever heard of farmland investing? Karsten aka Big ERN posted this guestpost by Scott last month, interesting read:

Investing in farmland is a strategy that offers low volatility and returns that are uncorrelated with the stock market. It normally performs well in times of inflation and asset deflation. In the recent financial crisis, farmland was one of the only asset classes which had increased in value by Q4 2008. Farmland has also performed very well over the past twenty years. US farmland had a compounded return of roughly 16% in the past ten years, whereas the S&P 500 had a cumulative total return of 10%. Farmland is also low-cost in comparison to other real estate investments – tax and maintenance costs are both low.

The respective ticker symbols are, performance has not been outstanding in the recent past [!]:
1] LAND for Gladstone Land Corp.
2] FPI for Farmland Partners Inc (merged with AFCO, previously known as American Farmland Co.)

However, even during the great depression or if robots take over the world: people always had and will have to eat. Food prices - and therefore assets used to produce those - will be inflation protected. Farmland did well in the 1930’s as well as in 2008/09.

Any thoughts from you guys?

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@julianek what you’re saying makes a lot of sense. I guess I should not discourage people to invest actively (but of course this means they will need to obtain the knowledge first and then make the tedious work of screening the company’s business model and finance).

Career risk makes perfect sense to me. I’m lacking the knowledge/data to see how much of the market is controlled by pension funds, index funds or hedge funds. But I bet there is a portion of the market where beating the market is a requirement to keeping your job :slight_smile:

I don’t mean that managing billions is an advantage in investing. It’s more of a proof to me that the person in charge knows what he’s doing and has proven education and track record in order to get that job. Sure, guys like Michael Burry (as portrayed in The Big Short) are a minority, but they do exist.

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On a side note, Burry in the Big Short is a good example of what career risk must be like. Have you noticed how, because he has chosen the unusual path, investors want to withdraw their funds/sue him? What a stressful environment it was at the time? Most managers would have given up in this situation.
In my opinion, part of the reason why he went through anyway is his Asperger Syndrome.

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Well, actually I do feel pretty stupid and naive even though I read a lot about this topic. But I will feel even more stupid if I invest at this moment in time when everyone is saying that the market is overpriced and we’re heading to a correction. I’m also pretty risk averse, so ETFs, not stocks feel right to me.

However from what I read so far I make a conclusion that the rise of stocks in price is a very cyclical thing and it’s not clever to buy expensive and then freak out and sell cheap (I think I’m a good candidate to do just that :exploding_head:), but it’s OK to sit through a crash if you’ve already made some money. So I’m inclined to do nothing now, just learn and prepare. And I’m thankful for all the information on this forum.

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this is the very heart of indexing, it’s greatest strength to avoid this!

this is an extremely important, self-honest conclusion! whatever you will be investing in later, make sure you will not panic at expected dops in prices. mixing cash and other assets is the key, even eventually commodities. depends on your taste and risk tolerance

thats not a bad thing to do. of course passive indexing philosophy says on average you lose by staying out of the market. on the other hand, mistakes that you later regret might be more costly than missing out some gains. it took me 3 years of reading up before i knew what i wanted :slight_smile: but, after spending this much time, i am highly confident of what i am doing, and little impressed by any new “hip” fashion or guru coming up. this keeps my investments at steady course

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Dollar Cost averaging!
You start small and grow. So you can get used to it and also can make small mistakes if you “wish”.
DCA isn’t a solution for seasoned investors, but I believe it’s the best solution for “unsecure” people and also if you believe somehow that “there will be a crash soon” ©

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I guess DCA can encourage hesitant investors, even though it’s been empirically proven that it performs worse than simply investing all you got at once.

@Knoch if you can contribute 5’000 CHF now, then do it. You will get more comfortable in the process. Then in 3 months, chip in another 5’000, and so on. If prices are lower than today then good, you can buy cheap. If they are higher, even better, you’re making profit!

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Yes, it’s worse. I’ve read that. But investing is very personal. Some people are afraid, some people really believe to know when a crash more or less will happen.
Also “perform worse” might means just 5-6 % difference “only”…

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Thanks for the advice, guys.

To come back to the topic if you are interested in learning more about the ideas of Steve Keen (video above) on the supposedly coming financial crisis you can read his small book:

https://www.amazon.com/gp/product/1509513728/ref=x_gr_w_bb?ie=UTF8&tag=x_gr_w_bb-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=1509513728&SubscriptionId=1MGPYB6YW3HWK55XCGG2

I just finished it and a couple of take-aways are these:

  • crisis is inherent to capitalism and cannot be avoided as the system itself is cyclical
  • crisis happens when private debt goes above 1.5 GDP and keeps accelerating in the last five years
  • China and Hong Kong are among the first candidates that will fall (I read this about China in many places already, including the interviews with Robert Aliber mentioned above), Switzerland is also in the club
  • this crisis may be followed by a long recession, like the case of Japan after 1987
  • the reforms needed to improve the situation would need to be unconventional like “helicopter money” and will meet with strong opposition from the financial sector

Just saw this and I thought it could be of interest:

https://www.bloomberg.com/news/articles/2018-04-05/crash-course-in-market-timing-shows-cost-of-being-wrong-at-tops

Even the worst declines are often erased, meaning an ill-timed decision to sell is usually a bigger mistake than waiting for the bottom. Over the last eight decades, the S&P 500 has advanced a median 21 percent in the year prior to a market top, compared with a 15 percent decline in the year that followed. The gains were big enough to overcome losses over the ensuing year 67 percent of the time, data compiled by BofA show.

Paraphrasing Dr. Strangelove, just stop worrying and learn to love the market. :stuck_out_tongue:

I wonder if not all successful individual active investors have some form of this syndrome - in essence, you need to be ultra unemotional and process numbers fast.

I believe it has more to do with how these investors think about the market.
Buffett makes a good point with an analogy with real estate and farming in his 2013 letter to shareholders (somehow people understand better when we talk about real estate than about the stock market).

It goes like this:
Imagine you own a small farm. This farms yields around 10k USD net every year. You know as well that your earnings will grow little over the long term because of improvement efficiencies (some years it will be a little bit less, some other years a little bit more, but on average it will grow a little bit on the long term).

Now imagine that you have a neighbor that has exactly the same farm as you (this is the analogy with the share where each investor owns the same part of companies).
Imagine as well that your neighbor, this poor fellow, comes every day to your door, and tell you at which price he would buy your farm, or at which price he would sell you his farm, with no obligation on your part.

Most of the time, the price he would quote you would be in line with the 10k the farm is yielding (maybe around 150k-200k USD?). But some other times, your neighbor will suffer from manic-depressive influences and would quote you prices that are totally out of whack.

Would you buy his farm for 1 million USD? Hell no! Would you sell yours for 1 million? Hell yes!
Would you buy his farm for 10k USD? Sure! Would you sell for 10kUSD? Get out of here!

So the cornerstone is to know what you are an owner of, its value and its earning capacity, and also to realize that you have no obligation toward your neighbor, Mr Market. On the contrary, you are totally allowed to take advantage of him during his periods of folly.

If you think like this about the market, then you won’t be affected too much about crashes. Sure, paper losses might hurt a little bit, but as long as you know that what you own is worth way more that the quoted price, then you’ll sleep better.

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Today I discovered this economist, who explains very well how the crises are created and why we will have another one:

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