There will always be doomsday merchants spruiking that investors should get out of stocks. The stories appear frequently in many publications and predict that we are just around the corner from another major crash like the GFC or dot-com boom of 2000.
The problem is that many of the writers have an ulterior motive, either trying to sell books or seminars, or attempting to continue having their name in the spotlight after correctly ‘forecasting’ the GFC.
The Foolish way
I propose that Foolish investors should take no notice of people who proclaim to know which way the sharemarket will move, and take even less notice of those that are forecasting huge crashes.
If you remember, there were ‘experts’ claiming that the Russia-Ukraine issue would cause an instant crash (hasn’t happened), that tapering of US bond purchases would destroy all gains made since 2007 (hasn’t happened), that the emerging market crisis of early 2014 would bring down the Western world (hasn’t happened), and there was probably also someone that forecast a future alien invasion that would cause stocks to crash. Don’t listen to them!
Experts with data
Other experts note that we have spent around 16 months since our last 10% decline, well above the average, or that the volatility index is at multi-year lows and therefore we MUST be ready for a crash. In my view, this demonstrates the strength of the world economy and lack of issues plaguing investors’ minds.
The way ahead
Instead, as the Motley Fool writers have always noted, the best way to negotiate any crisis and profit from good times is to own a diversified portfolio of high-quality companies, bought at a reasonable price. Of course, not holding stocks during a crisis would be good too, however trying to time a crisis is a very dangerous game as each crisis that doesn’t occur results in lost profits and transaction fees.
An excellent question. Conservative investors concerned about a major sharemarket crash should consider if the share market is really for them if they cannot stomach potentially large losses. If it is for you, then consider some more defensive companies, like Woolworths Limited (ASX: WOW), Wesfarmers Ltd (ASX: WES), Telstra Corporation Ltd (ASX: TLS), Amcor Limited (ASX: AMC), or CSL Limited (ASX: CSL). These businesses should continue to perform relatively well during any share market crash and grow investor funds over the long term.