About this housing bubble…
Who the hell knows if it will burst…
When it might burst…
And what might be the consequences.
Yes, bad things happen when debt-fuelled bubbles burst. Very bad things.
A deep recession. Bank stocks totally blow up, with one fund manager I spoke to today saying the Commonwealth Bank of Australia (ASX: CBA) share price could fall to $30, and go even lower in a full blown panic.
Australia's very own GFC… coming your way.
Must be time to sell, right?
And some people are… selling everything.
I spoke to someone yesterday who told me he'd sold everything. He did so just after Trump's election win. Sold his gold, too.
Holding gold in the first place is just idiotic. My guess is he torched a bunch of cash. Most gold speculators do.
And now… he waits for a stock market crash.
Since he has started waiting, the S&P/ASX 200 Index has jumped 14% higher. The Trump Trade in full swing.
He's also totally missed the dividend windfall, with over $15 billion being paid out to shareholders last week and this week alone.
Waiting for the next stock market crash feels like the smart thing to do… especially so given every man and his dog knows we're sitting on top of the mother of all housing bubbles.
Meanwhile, while you wait, your cash earns a pittance, its value slowly withering away as it sits rotting in term deposit accounts.
And the stock market keeps grinding higher.
And ASX stocks keep paying dividends.
And a true stock market crash — where the ASX falls 20% or more — may be years away.
Most stock market crashes don't occur in isolation. They are global phenomenons. Whatever Wall Street does, the ASX and the rest of the world follows.
Here's what the crash merchants, the pedlars of doom and bloom and the gold bugs conveniently forget…
Wall Street is cruising. Not too hot, not too cold, but just about right.
Sure, you can find pockets of concern. Shopping malls turning into ghost towns, and buckling under the weight of massive debts. Delinquencies rising on subprime car loans. Overvalued tech stocks. Marc Faber's prediction that markets will fall, and when they fall, it will turn into an avalanche.
US corporate earnings are cruising… cruising to their highest growth rate since the fourth quarter of 2011, something that prompted The Wall Street Journal to say is "another sign that the stock-market rally could have further to run."
The American economy is cruising. Research from ANZ puts the chances of a US recession in 2018 at just 5%. And since stock market crashes almost always precede recessions, that puts the chances of a US stock market crash, and therefore an ASX crash, at let's say 7.5%.
Investing is all about putting the odds in your favour. Based on the above, there's a 92.5% chance the ASX won't crash between now and the end of 2018.
And that's probably being conservative. Very conservative. Sydney and Melbourne property bubble or not.
When buying individual stocks, put the odds in your favour by buying with a margin of safety. Buy companies with multiple ways to win. Avoid companies with little upside potential but yet have multiple ways to lose. A bank, for example.
And it means avoiding pure speculation, the likes of which is happening right now with medical marijuana stocks.
Marijuana is not called weed for nothing. It grows quickly, and anywhere in the world. Supply will outpace demand, and at record pace. Nothing is more certain.
And medical marijuana stock speculators will get burnt. The hype will quickly disappear. Profitability will be years away, if these companies ever become profitable.
If you think you can get into hot pot stocks like Auscann Group Holdings Ltd
(ASX: AC8) and get out, at a significant profit, before the market loses interest in such stocks, you're deluded. Backing Winx at $1.10 is a better, and safer bet… and I'd never take those odds in a horse race.
Putting the odds in your favour is about buying high quality, growing, dividend-paying companies, and holding a collection of them for years.
It's not as exciting as the prospect of making a quick buck investing in speculative ASX stocks, be they medical marijuana or mining exploration companies. But it's about as sure a bet as you can get when it comes to life-long wealth creation.
