Market Crash Theories and Losing It All

Discussion in 'Psychology' started by eagle488, Dec 2, 2006.

  1. I have seen a lot of market crash theories on here lately.

    There is no reason to fear a market crash. In fact, there is every reason in the world to embrace it. In the event of a market crash, it will create more opportunities then it will destroy. Sure you might lose most or all of your free cash. However, no one can take away your knowledge. You will simply learn from this one and then move on to become bigger and better then before.

    Lets look at the tech crash for example. Lets say you lost all of your cash during 2000 and then had to get a job, GASP. All you would have to do is live humbly for 2-3 years while you snapped up equities that would probably be worth 3-4 times their value in 3-4 years. If you lost everything during 2000, but came back in 2003 to buy stocks and then held them to the present time you would probably be much wealthier then you were in 2000.

    I feel valuations are extended at the present time and there is a younger generation of trader/investor that is in the market who did not experience the crash of 2000, the panic of 1998 or the crash of 1987. Some of these equities you see that have been wildly bid up will be cut in half in a years time most likely.

    The market is going to pull back about 7-10% within the next year. In fact, there might even be a panic or a crash. I say to have no fear.

    I always like to think of Cantor Fitzgerald where the entire corporate headquarters and most of the employees were wiped out. In a matter of years, they came back strong and are one of the top players in the game yet again.

    There is a difference between luck and brilliance. The brilliant corporation or businessman will come back in 5 years if you took everything away from them. Its only the lucky who will not come back and go away.

    In my lifetime, I did once take a 60% loss of all my free cash. However, it didnt take me long to make it all back. It was scary, frustrating and a defeating experience. I learned that the only way to deal with such an experience is to attack it head on.

    The fact that hedge funds are starting to issue bonds is scary. The reasoning behind the issuance of such bonds is because they fear that the banks will call them on their debt in the event of a panic. The hedge fund managers are starting to see whats around the corner. If these professional investors are issuing bonds, then you should be very afraid. They are preparing for a time when there will be a panic. They see it coming. Why else would they even consider issuing bonds?

    If you have looked at the data and feel that trouble is lurking around the corner, then you should change your ways right now. Instead of trading technology growth names, start trading a large cap value stock. If you have a base long term portfolio, start switching over to large cap value, put some into cash or into bonds.

    I can tell you this much about the market. People dont line up in an orderly manner to leave. They will do it all at once in a panic. There are always indications before it happens however. When you see those indications, then you must act now and change to less riskier strategies.

    For those who do not believe there will be some type of pullback then you can experience the full frontal force of losing most or all of your free cash. It is an eye opening experience.

    At the end of the year, I am going to be diversifying away my base portfolio from small-caps and into large cap value plays. I will also place some cash into balanced mutual funds that have been known to come through market corrections quite well.

    At the current time, my short term investments or trades now revolve around the energy sector. Energy names have more then reasonable valuations, have been beaten down the last months and we all know that energy prices are not going down. Too much demand and conflict in the world for energy prices to down any further.

    When I look at the chart, the chart tells me that the market needs to correct at least 8-10% before you can start comfortably going back into it. This will be a typical soft correction. If it does not correct and keeps ballooning up, then you can expect a hard correction.

    Let me give you an example. Look at how some stocks over the summer had a "Black Monday" where they dumped more then 15% in a single day. What are the chances that this could happen to an entire sector of stocks at the same time after they have been bid up by "traders"? The people who trade and invest in stocks, for the most part, have no patience and lose confidence very quickly. One second after a conference call, you see the stock taking a quick dump as they sell all they can in afterhours. So what if everyone loses confidence in the market all at once?

    I say let the crash come. Whatever happens, I will not be the one jumping out of windows. Even if I have to scrub floors and trade out of the public library on a computer using sharebuilder, then thats what I will do. In any event, I will make it all back and then some.

    Sorry for my hacked English, I was never an English teacher.