6 ways to prepare for the coming sharemarket crash


The ASX is down, again, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) off 20 points in early trading, falling below 4,300.

Overnight, the Dow sank 76 points to 12,932, its fifth day of losses in a row. The S&P 500 fell 0.4 percent to 1,364, its lowest level in almost a month.

The Aussie dollar is trading just above $US1.01. According to the AFR, Westpac (ASX: WBC) says its simple fair value estimate fell by almost 4% last week to US93.60¢, noting however any move towards that fair value is dependent on continued risk aversion.

Europe is again the catalyst for general sharemarket jitters.

It’s the same old story, just dressed in different clothes…

  • European countries have too much debt.
  • Greek bailout funds are contingent on stringent austerity measures being implemented.
  • But austerity doesn’t grow the economy, and makes a bad situation worse.
  • Not surprisingly, European voters don’t want austerity.
  • No austerity = no bailout funds = default = exit the euro = fears of contagion = falling sharemarket = fear = panic

I could go on. You get the picture.

On Bloomberg, John Taylor of hedge fund FX Concepts LLC said Greece will probably leave the euro as soon as next month as the government runs out of cash and European institutions fail to lend more to the nation.

“The Europeans aren’t going to give them the money, the International Monetary Fund’s not going to give them an OK. They will be out of money in June.”

Look out below? Is it time to prepare for the coming 2012 market crash?

It’s always time to prepare for a market crash. Take these simple steps…

  1. Don’t invest with margin.
  2. Don’t speculate on penny shares.
  3. Buy good companies at great prices.
  4. Sell companies when they become over-valued, and/or you have better opportunities for your money.
  5. Invest with a long-term perspective.
  6. Have access to cash for those compelling opportunities that come along once every few years.

The observant amongst you will note these same 6 steps are appropriate for any market, at any time. They were appropriate in April this year, in 2007 when all was seemingly going smoothly, and in March 2009, when the financial world was seemingly on the brink.

What we’re seeing now in the markets is not even close to a market crash situation. The VIX, a measure of volatility also known as the fear index, is trading at 19 — well within the range of normal market conditions. Last year, it spiked up to 45 as fear really gripped the markets.

Dust off your watchlist

At the right price, which companies would you want to buy? BHP Billiton (ASX: BHP), Mesoblast (ASX: MSB), CSL (ASX: CSL), Acrux (ASX: ACR), QR National (ASX: QRN) and Seek (ASX: SEK) would be a good list, for starters.

Don’t fear a market crash. Embrace the opportunities. Time and time again, history has shown investors who buy when others are fearful, take the investing cake.

Are you fearful of a coming market crash? Read This Before The Next Market Crash is The Motley Fool’s free report. We strongly suggest reading it now might save you thousands of dollars. Click here now to request your free copy, before it’s too late.

More reading

The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. Bruce Jackson has an interest in Westpac and BHP. This article contains general investment advice only (under AFSL 400691).

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.