I was going to start by apologising for the sensational headline. But on a day like today, with the Dow slumping 130 points overnight, and the S&P/ASX 200 dropping 50 points or 1% in morning trade, where nerves are already starting to jangle… such a headline seems appropriate. I mean to say, as if there’s not enough bad news and scare mongering out there. Take this headline in a recent Business Insider article, for example… “Hussman: I Would Be Remiss Not To Tell You That The Stock Market Will Probably Crash” Pile the possibility of war on top…
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I was going to start by apologising for the sensational headline.
But on a day like today, with the Dow slumping 130 points overnight, and the S&P/ASX 200 dropping 50 points or 1% in morning trade, where nerves are already starting to jangle… such a headline seems appropriate.
I mean to say, as if there’s not enough bad news and scare mongering out there.
Take this headline in a recent Business Insider article, for example…
“Hussman: I Would Be Remiss Not To Tell You That The Stock Market Will Probably Crash”
Pile the possibility of war on top of the usual reasons to be fearful of a stock market crash, and no wonder the stock market is taking a tumble today.
The very real possibility of U.S. air strikes on Syria is the cause of today’s jitters.
Lives will be lost, but not investing fortunes
War is a deadly serious business, not something to be treated flippantly. Lives are on the line, and blood will be shed. It’s a truly awful prospect.
But is it a reason for a REAL market crash? I’d strongly suggest NOT.
That said, I get the ramifications for stock markets.
Anything that puts Middle Eastern stability at risk is a threat to the world’s supply of oil. No oil, no world. Cue stock market crash.
That’s the theory.
Reality is almost always different.
It seems hardly a day goes by now without some dire warning dropping into my inbox.
After all, if it’s not the end of the mining boom, tapering of QE or the end of the Chinese growth miracle, then it’s a housing market crash, the eurozone going bust or the banking sector going belly up.
Lying politicians and a total election turn-off
And that’s without our incompetent, lying politicians getting in on the act… yes, the forthcoming election remains a total turn-off and tune-out for me.
Whichever way you cut it, the doomsters have some dire warning up their sleeves that’s going to result in the mother of all market crashes, sending all of our portfolios and retirement savings down the plug hole.
It can be scary stuff.
And I must admit, there are times when I wonder if the doom-mongers are right.
All-round wealth destruction on a cataclysmic scale
I mean, we all know the economy is balanced on a knife edge, propped up by ultra-low interest rates — which surely can’t last forever
We all know the mining boom is over, and economists and politicians alike are hoping like hell Australia will make a smooth transition back to its traditional growth engines of housing, manufacturing and retail.
Add in the Syria situation, rising oil prices and the sudden threat of inflation on the horizon, combined with Helicopter Ben Bernanke’s ‘tapering’, and it’s no wonder some investors are thinking “market crash” again.
17%, and don’t you forget it, Fool
But what is forgotten in all this hullabaloo is the ASX has enjoyed a very good run during the past twelve months, up 17%.
You’d take that sort of return and bank it all year long.
Many blue chips are trading close to 52-week highs, including Commonwealth Bank (ASX: CBA), Telstra (ASX: TLS) and dot com darlings carsales.com (ASX: CRZ), Seek (ASX: SEK) and REA Group (ASX: REA), owner of realestate.com.au.
That said, many investors, nervously sitting on large profits, would hate to see their paper gains evaporate overnight… which makes it understandable how easily the doom-mongers can grab our attention with dark tales of market crashes, economic nightmares and all-round wealth destruction on a cataclysmic scale.
Sell your portfolio, run to the bunker and never touch a share ever again
But let me put all today’s worries, anxiety and gloom into perspective.
In fact, allow me to take you back to October 2007, a time when the S&P/ASX 200 was flying high, margin loans were the latest must-have investing accessory, and Storm Financial was still signing up unsuspecting punters.
Back then, most investors were very optimistic, with the index thundering higher, BHP Billiton (ASX: BHP) shares changing hands for $47 and the economy seemingly in good health.
And yet, in retrospect…
October 2007 was a terrible point to invest generally in shares (though not many people realised it at the time).
Indeed, had you been told during 2007 what was to actually happen during the next 6 years…
— that the S&P/ASX 200 would not go any higher… and worse, would still be trading 25% lower today.
— that the stock market would crash 50% peak to trough.
— that banks around the world would go bust and require a multi-billion dollar government bailouts.
… you’d be forgiven for selling your entire portfolio, running to the nearest bunker and never touching shares ever again.
However — and I know this is difficult to believe — even from October 2007, life-changing fortunes were being created by ordinary investors carefully buying ordinary shares.
They made up to SIX times their money
Let me give you just three examples.
TPG Telecom (ASX: TPM) — UP 667%
REA Group — UP 435%
Domino’s Pizza (ASX: DMP) — UP 328%
Now, these three names were well-known companies back in 2007 and anyone smart enough to spot their potential could have since made up to SIX times their money… despite the awful time for the markets that followed.
The market truths the doom-mongers will never tell you
After writing for Motley Fool since 1997, I want to share with you three investing truths that the doom-mongers will never tell you:
1. Nobody can predict the future with accuracy.
Nobody forecast anything about Gulf wars, oil spikes and banking crashes back in 1997.
2. There will always be a reason not to buy shares.
Enron, ABC Learning, Greece, SARS, bond yields, government elections, budget deficits, Japanese earthquakes, the potential for Syrian air strikes… the list has never stopped growing, and never will.
3. There are always enormous winners out there.
They are just waiting to be bought — whatever the doom-mongers tell you is around the corner.
Opportunities for enormous stock-market profits are out there right now
Just so you know, I never waste any time reading all the dire warnings that drop into my inbox.
Sell everything now? Market carnage coming soon? Your retirement will be obliterated?
Delete. Delete. Delete.
Truth is, I have long since given up working out the consequences of low interest rates, the money printing and the Chinese economy.
Instead I just simply concentrate on buying good companies at cheap valuations to hold for the long term.
You see, even though there may be plenty of reasons to be worried right now…
Even if the economy, the election, Bernanke’s tapering, natural disasters and wars do create a few more savage bear markets during the next 6 years, life-changing fortunes will still be enjoyed by ordinary investors carefully buying ordinary shares.
Just ask anyone who multiplied their money many times over buying and holding ordinary names such as TPG Telecom, REA Group and Domino’s Pizza.
Those people have paid no attention to any gloom and doom over the years, but instead simply holding on to their shares, knowing they have backed top-notch businesses with dependable earnings and respectable prospects.
Trust me, similar quality opportunities for enormous stock-market profits are out there right now — whatever the frightening messages in your inbox are saying.
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Of the companies mentioned above, Bruce Jackson has an interest in Commonwealth Bank, Telstra and BHP Billiton.