How to prepare to the possible future crash?


#21

Well, “stocks are overpriced” is not an obvious reason for a crash in my opinion. It has to be accompanied by a yet unknown trigger, like a series of bankruptcies. It may as well happen, that prices will oscillate around current heights for a few years to come, right?


#22

Shares are high but think also to the earning growth rate which is close to 10 % for the S&P500. Ask your boss to index your salary on the dividend paid by VOO and you will be a real winner. With a PER of 24 it is not very good but it is still much better than bonds. Do you really think that the US government can afford an increase of the yield of bonds to 4% with the actual level of debt of the US?


#23

Well, looking for the answer for this topic I just finished reading this book:

The book is interesting as it gives you some indications on what’s wrong with the economy now and what indicators one could follow to see if the crash is coming. I’m not sure that these indicators work as everyone would know in advance what’s coming. He describes of course everything else than a buy and hold approach. The author was a hedge fund manager. So his suggestion in preparing to the crash is that you think well what you want to buy when it all starts falling. Of course he is also suggesting shorting stuff that’s going to fail in his opinion, like junk bonds and Japanese Yen.

I don’t feel really prepared to do this shorting stuff (the Swiss tax office will definitely identify you as a professional trader if you go short on anything, right?). I’d be more than happy if I finally have the guts to buy some ETFs and get clear about my asset allocation.


#24

And who do you think sets the prices on the market? Bogleheads and small mustachians? Amateur day traders? Or huge investment funds and pension funds? Of course, everybody pulls a little bit in their direction, but it’s the guys with big money that have the biggest power.

And do you think these guys don’t know all these indicators you’re talking about? Do you think there are no algorithms that squeeze out these indicators to the last penny within milliseconds after they get the data you don’t even see?

When we’re talking about market analysis, I always have the feeling like people believe the market price is set by some ignorants and you just need to add 2+2 to see that it’s all about to crash. I guess I just choose to believe that the average of the market is more competent than me.


#25

It’s highly unlikely for reasons mentioned by @hedgehog, but let’s assume that in next decades US turns into Japan (which has its problems mostly because of super fast aging society and debt-based welfare state). That still is not a problem for an investor who diversifies globally - unless entire globe will turn into Japan, but, again, this is unlikely with growing world population. If additionally you put more weight on regions that have big young populations (i.e. most of Asia) and regions with less excessive regulations, taxation and debt (e.g. Switzerland, Singapore, Hong Kong, New Zealand, Australia, etc), then you should have even more protection from the aging/debt problems of developed nations.

I still think though that US companies rock and will rock for many decades to come.


#26

Been there, done that. It took me few months figure out my asset allocation and corresponding ETFs, another few months to start investing, and then another few months to start investing more aggressively (added EM and small cap to portfolio), and then yet another few months to stop hoarding so much cash and put more than half of it into stocks. The sooner you start, the quicker you become more confident.

Another thing that helped me become more confident was talking to my friend who is a finance professor and chief investing officer in one of Swiss fintech startups, and reading his books recommendations - especially “Random Walk Down Wall Street” by Burton Malkiel.


#27

This advice reminds me an interview with William F. Sharpe, who said that he never did a backtest that he didn’t like. :smiley:


#28

Did you also read about this: https://medium.com/insurge-intelligence/city-of-london-financiers-contemplate-imminent-2018-us-stock-market-crash-of-up-to-fifty-ed217752428
Does somebody know this Aliber? http://www.csfi.org/20180222-robert-aliber/


#29

When thinking about the way to profit from the possible crash I’m asking myself what’s going to fall the lowest and then recover to the highest level. From what I know good candidates would be small cap value companies (VBR) and emerging markets. Any other ideas?


#30

What are forum member opinions about hedging the tail risk in the portfolio by having some inverse ETFs at this moment where the risk of crash and losing money is substantial? Here Nassim Taleb talking about this:

https://www.youtube.com/watch?v=ASD1LJQzj5o


What would you about Gold as an alternative to Bonds?
#31

And stay long in the same market at the same time via some other etfs? That’s not hedging, that’s a dumb way to lose some money to fees. Better buy some oom puts.

There are market-neutral investment strategies, but they work by identifying a set of quality stocks you want to be long and shorting enough shit to make the overall beta zero. NOT by being long and short the same shit at the same time.


#32

Hearing this guy:

I start thinking that having gold and silver may still not be such a bad idea…

So what he says in another place is:

MW: Who will be the big losers in the next crisis? And how do you recommend that investors position themselves?

J.R.: Losers will fall into two groups. The first are those who hold wealth in digital form, such as stocks, bonds, money-market funds and bank accounts. This type of wealth is the easiest to freeze in a panic. You will not be able to access this wealth, except perhaps in very small amounts for gas and groceries, in the next panic. The solution is to have hard assets outside the digital system such as gold, silver, fine art, land and private equity where you rely on written contracts and not digital records.

The second group are those who rely on fixed-income returns such as life insurance, annuities, retirement accounts, social security and bank interest. These income streams are likely to lose value, since governments will have to resort to inflation to deal with the overwhelming mountain of debt collapsing upon them. The solution to this is to allocate 10% of your investible assets to physical gold or silver. That will be your inflation insurance when the time comes.


#33

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:


#34

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.

[removed content]

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


#35

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…


#36

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:


#37

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…


#38

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.


#39

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.


#40

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?