Is it possible that stock markets will pull back or even crash?
No-one is wishing for one… but if it did happen, would it be so bad?
In case you don’t know, it’s been the longest Bull market since the history of the stock market.
It started in 2009 after the financial bubble of 2007-2008 and lasted until this week. That is 13-years, a long time, it’s unprecedented.
Now interest rates are being raised, which is traditionally bad for the stock market.
But is it so bad?
Here’s a new perspective on why the market crash is a good thing for markets and for your finances.
If the market just goes up, then if there wasn’t another low point you’d probably never have a chance to get in because the price will go higher and higher, and you wouldn’t want to buy at that price.
If there is a pullback this allows you to get in at a lower price than a previous high. If it crashes, let’s say 50%, or even more, then it allows you to get in at a much larger discount.
And what most people don’t realise, is that if a stock falls by 20% and you’ve got some and then it goes back to where it was, and no more, then you have made a 20% gain.
If the stock falls 50% and you get in, then it goes back to where it was, that is a 100% gain.
Most people don’t realise this. It’s a shock when they learn this. It’s $20. It falls to $10. That’s a 50% loss. You get in at $10 and it goes to $20. What has happened? That’s right. You have basically doubled your money – 100%!
Most people don’t realise this and this is why we love the stock market, but it’s just maths. You don’t even need to understand it, it’s just a fact. There’s nothing one can do about it, it’s just a fact.
Now, some people might argue that if we were to have a crash we may not get out, we may slip into a Bear market and that Bear market might be prolonged because after a 12-year Bull market, which is three times as long as the average Bull market of four years, then we might also fall into a longer Bear market.
The average Bear market is approximately two years. Who knows how long this one might be? Three, four, five, six years…? No one really knows.
In March, 2021, there was a crash of approximately 50%. It took just weeks to go back up above the crash.
But before you start to worry, just remember – investment legend Warren Buffett didn’t care whether the stock market closed for 5 to 10 years!
In the same way, as long as we don’t need the money, or care how long it takes, we will make money – if we have a strategy, such as the value cost averaging strategy that I’ve been using for over 21 years now.
Yes, we are thinking it might go up fast, however we are prepared to wait a few years if needed because it’s an investment strategy, not a trading strategy.
And therefore, even though no one wants a stock market crash or a Bear market, it does allow us to buy good value stocks at a cheaper price.
