Share markets have gained spectacularly since the COVID-19 crash back in March, even though the pandemic is far from over.
Valuations for some growth companies are now at historic highs, and that has many investors worried that we're in a bubble.
GMO co-founder Jeremy Grantham warned of exactly that earlier this month, saying current times are "terrifying" and that the huge bubble would pop soon.
"Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives," he said.
"Here we are again, waiting for the last dance and, eventually, for the music to stop."
But two Australian experts have advised investors to stop wasting energy worrying about a market crash.
"Don't constantly worry about a market collapse," Marcus Today director Marcus Padley said on Livewire.
"Just be alert to it. React, don't predict."
Forager Funds chief investment officer Steve Johnson agreed.
"If 2020 proved anything, it was that predicting the future is extremely difficult, if not futile," he said in a letter to investors on Thursday.
"We didn't predict the market bottom in 2020. We didn't anticipate the fastest bear market recovery on record. We simply tried to construct the best portfolios we could with the opportunities that were in front of us."
Reacting is more important than predicting
Johnson humbly referred back to a blog post he made on 17 February last year. This was a few days before stock markets around the globe started plunging.
"Investors have reacted perfectly sensibly to a significant event that is still unlikely to have a dramatic impact on the value of equity markets," he said at the time.
Despite this clearly incorrect prediction, Forager's funds performed well last year. The internal shares fund returned a very nice 38.3%, while Forager Australian Shares Fund (ASX: FOR) returned 21.6%.
"Writing a blog that looked foolish in hindsight was probably a blessing in disguise," Johnson said.
"It served as a timely reminder that great investment returns come from finding great investment opportunities. While many of those who predicted a market meltdown were wasting their time trying to identify the bottom, we were out there looking for stocks to buy."
"Expect the bull market to continue – until it doesn't," he said.
"There is always something to worry about, but we really don't need to worry about things that could happen until they happen."
Here's what to do
Instead of losing sleep over the prospect of a market crash, both experts recommended being aware of the biggest risks for 2021.
Keep monitoring for any signs that those risks might rear their heads. Then if one does seem like it's likely, adjust your portfolio accordingly.
Padley said one risk he saw was the current vaccines could become ineffective because of a coronavirus mutation.
"Pandemic beneficiaries would soar, recovery sectors dump, gold will fly, and the market will briefly collapse. Mild forms of that will come with anything that dents the market's global economic assumption or delays it."
One big risk that both experts warned was any evidence that inflation was on the way up. That would force central banks to consider pulling up interest rates.
According to Johnson, investors have been assuming low interest rates to justify piling into many investments such as Tesla Inc (NASDAQ: TSLA) shares.
"There are theories, from ageing populations to technological improvements and low cost labour substitution, that explain low inflation or even deflation as a permanent feature of the developed world," he said.
"I don't have a strong view that those theories are wrong. But I know that when the whole market thinks something can't possibly happen, the consequences of that assumption being wrong are significant."
Padley thought central banks would be wary about hiking up rates too soon.
"The central banks are unlikely to allow a repeat of the 'taper tantrum' that caused the market to fall over in October 2018, so we can probably relax for this year at least."