29 May 2020
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Don't worry about stock market crashes. Take my advice!

10 January 2019

Another positive day for US stocks, which is bound to help our stock market head higher today. This trend up makes me feel comfortable that I didn’t get on board the doomsday train that many ‘experts’ were driving before Christmas.

Of course, I could be proved wrong and this could be a sucker’s rally and another big leg down could be out there waiting to happen! It did happen in 2008 that a second down-leg resulted after Lehman Brothers went under. The slump and then rebound after Bear Stearns failed saw one of this country’s most respected economists and market analysts call the end of the GFC crash in mid-2008 and boy did he have egg on his face!

He made his call on my TV show but let me say it’s easy to be wrong when you don’t know all the info and lots of big financial institutions and debt ratings agencies were not being upfront about the quality of their loan assets.

However, I do believe the circumstances in 2019 are different from 2008 but if Donald Trump disappoints Wall Street with his trade negotiations, then there will be another sell off. On the other hand, if he cracks a good deal, then stocks will go higher.

Overnight, the Fed minutes showed that the US central bank intends to be patient on interest rate rises and that’s why stocks are up again. Also there has been a rebound in oil prices and the US dollar is getting softer. And when that happens, US stocks head higher.

Stories like this happen every day and I report on them just about every day but it doesn’t determine how I invest for most of my portfolio. I allocate a small amount to stocks that I might buy and hold for a short time to simply pocket some profit.

Most of my portfolio are assets/companies that I want to hold for a long time. I’ve accumulated good income-payers because I know stock markets go up and down and my capital — my hard-earned money — goes up and down. But as long as I get steady income each year, then I know I’ve invested wisely.

I also know time and compounding will ensure that I will do well out of stocks and my favourite chart, which I’ve often showed you is worth dragging out again.

The blue line shows what happened to $10,000 invested in the All Ords between 1970 and 2009 — one year after the GFC ripped 50% off investor’s capital. The blue line shows capital gain and dividends all reinvested each year and shows that there were numerous crashed — big drops in the blue line — but the upward slope of the line graphically shows you what happens to the value of good quality stocks/companies held for a long time.

I don’t want the stock market to crash but I know they often do and 9-10 years is about a typical cycle of boom then bust for stocks. I’d love to get out just before a crash and get in at the end but that’s hard to be accurate about.

If you want to play stocks, my advice to you is decide if you want to be a get in and get out punter or if you want to be an investor.

An investor buys great companies when they are beaten up and then holds them to see their value go up over time. Those who bought the CBA during the GFC at $27 should not be worried that the share price nearly hit $100 but is now $72.33.

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