The Australian sharemarket, benchmarked by the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) index, is an ideal place for those with the temperament to look past short-term issues and invest long term.
Is an ASX market crash coming in 2017?
Predicting a market crash, which is typically perceived to be a fall in share prices of 20% or more, is not easy.
Sure, a broken clock is right twice a day, and economists have predicted nine of the last two recessions. But I have never heard of any person (globally) having successfully predicted multiple market crashes.
Despite this, most of us think we have some edge that will help us avoid a market crash.
That has spawned an entire market and field of study devoted to the topic.
For example, when I was studying for one of the most prestigious finance exams worldwide, we were told that many people believe market crashes can be predicted by Fibonacci sequences, wave theory, the US Presidential election or even the final number in a year.
For example, since 2005 and 2015 both end in 5, the market will perform best in those years.
It's crazy.
Completely nuts.
Get enough monkeys on a typewriter and one will eventually write Shakespeare.
It's even more amazing when we consider shares are just part ownership of a business.
Yet, it must be acknowledged that share prices are a combination of a company's financial performance (long term) and investors' emotions (short term).
And, as noted above, humans are often completely irrational. So share prices can go all over the place for an extended period of time. There are many emotional investing biases.
So, is the All Ordinaries going to crash or not?
The best way I know to deal with a market crash is to accept two things:
- The market is going to crash
- But I don't know when
Indeed, the market crashes on average every seven to 10 years. But most of the time it recovers within a couple of years (or does it?).
So if you are investing for at least five years in growing businesses and continually adding regular amounts to your portfolio, you are putting the odds of investing successfully firmly in your favour.
Some share ideas to weather a market crash
Companies like Washington H. Soul Pattinson & Co. Ltd (ASX: SOL), Wesfarmers Ltd (ASX: WES) and Commonwealth Bank of Australia (ASX: CBA) have endured multiple market crashes and continued to go higher. In my opinion, they should definitely be on your watchlist. But they are probably not a buy right now.
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