The Motley Fool

What To Do When The Sharemarket Crashes

Dear Fellow Share Market Investor,

On March 16, 2011, in The Australian Financial Review, Matthew Kidman of Wilson Asset Management said…

“The world has got problems and we are in unchartered waters, in that we have not had a secular bear market since 1987 to 1992, but that’s what we have now.”

That comment was made at the height of the Japanese nuclear crisis.

It was a scary time for investors. Japan’s Nikkei index had just suffered its third worst fall EVER, plunging over 10.5% IN A SINGLE trading day.

The headlines in the Australian Financial Review highlighted the fears…

“Nuclear crisis smashes markets”

“Shares fall to a seven-month low”

“$A hurt by wider economic jitters”

“Slowdown fears hit oil and gold”

“Japan disaster adds to global woes”

You get the picture.

But here’s the really weird thing…from the low point of the Japanese disaster, the S&P/ASX 200 index soared 11% over the next month.

Although the people of Japan won’t ever forget the massive earthquake, investors both here in Australia, and abroad, seemingly shrugged off the devastating and ongoing natural disaster.

They did so at their absolute peril.

Here at The Motley Fool, we’re generally not ones to preach doom and gloom. But we have to admit…we were more than a little concerned.

“Optimism is returning to the Australian share market, with eight out of 10 direct shareholders saying it is a good time to hold or buy shares…” said The Age and Sydney Morning Herald on May 4th 2011.

You’d reckon that was good sign, right?

Think again.

Mum and Dad shareholders seem to have a happy knack of buying shares when they are trading high, and selling them at the low point. And on May 4th 2011, the S&P/ASX 200 index was still riding relatively high.

Things are a lot different now…

The S&P/ASX 200 index took another battering in 2011.

In August 2011, the headlines and warnings were similarly dire…

World markets plunge on debt fears – The Age

Wall St in biggest plunge since GFC – The Australian

Markets tumble as investors run for cover – The Australian Financial Review

Shares on slippery slope as fears mount – The Australian Financial Review

Market massacre – Business Spectator

In fact, the post-earthquake rally took the S&P/ASX 200 to a high of 4971 by mid-April – the highest point it would see in 2011. By the end of the year, the ASX 200 hit 4057 – just shy of a 20% decline.

And then the coup de grace from the Australian Financial Review…


Hold that thought…

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