benefits of a stock market crash

All I Want for Christmas is a Stock Market Crash……

There are some benefits of a stock market crash. People get so mad at me when I tell them I enjoy stock market crashes. But why would you get mad at anybody who wants something to go on sale? After all, it’s not my fault if you overpaid for your TV, your car, your house, or anything else that you wanted. I simply like the idea that I can something that I want at a bargain.

benefits of a stock market crash

The Shiller P/E…..

If you want to blame somebody for a stock market crash, blame all the investors who keep buying up stocks at increasingly absurd prices. The reason crashes occur it the first place is because the market is correcting itself. Rationality comes home to roost, and investors stop succumbing to the emotion of greed. If bubbles didn’t get so big, crashes wouldn’t be so drastic.

Our team pays attention to an extremely reliable indicator known as the Shiller P/E. This measurement was created by Nobel Prize Winner, and author of Irrational Exuberance, Professor Robert J. Shiller. Contrary to mainstream investment theory, Dr. Shiller believes that the market isn’t always rational. Instead, the herd follows instincts of fear in greed, which can drive prices ridiculously high or attractively low.

As I’m writing this, the Shiller P/E is reading at about 32.5. The only two times this indicator has ever reached such a level was right before Black Tuesday which initiated the Great Depression, and right before the Dot Com Bubble came crashing down. Even the crash of 2008 never saw a Schiller P/E this high at the bubble which preceded it.

 

The $3.25 Million Dollar Hot Dog Cart…..

Imagine that you wanted to go into business for yourself. You were sick of showing up to a job, and you wanted a nice simple business that would generate steady income for you. Hey, why not just buy a hot dog cart? You could even set it up at your local ball park where you could potentially make six figures.

Not a bad way to make a living. But before you get started, you have to figure out how much you are willing to pay to make $100,000.00 a year. Would you pay $300,000.00, $500,000.00, or maybe even $1,000,000.00? Even at a $1 million, you’d make your money back in ten years. Just so you know, most private businesses don’t sell more than 7 years for earnings. If it’s real stable, it might cost you 10 years.

But in the stock market, investors are willing to pay $3.25 million dollars for that hot dog cart. It would take over 30 years for you to make your money back at your hot dog stand. You’d be better off buying a bond that yields 3% and staying on the couch.

But many investors simply don’t get that. As Warren Buffet says, they are spending too much time looking at the score board instead of the playing field. They are so focused on a market that only seems to go up, that they lose all rationality about what they’re actually buying.

 

How to Avoid a Market Crash…..

It’s really quite simple. Stop following the herd. As Warren Buffet says “Be fearful when others are greedy, and greedy when others are fearful.” But how does one accomplish this? Well…..we have a pretty easy approach. It’s called tracking institutional money.

95% of the market tends to gravitate to polar opposites of the spectrum. They either have such low expectations that they are content with the single digit returns of mutual funds. Or they’re so impatient that they try to get rich overnight by becoming day traders.
Unfortunately, there’s a reason that so many Baby Boomers aren’t going to be able to retire. Both of these formulas haven’t worked for the average person. And we have no interest in using formulas that don’t work..

So we choose to operate in our niche. A sweet spot found between two ends of the spectrum. A way of investing where we generally outperform the market without being glued to the market all day. That’s the power of tracking institutional money.

It’s what’s allowed us to predictably avoid the crash of 2008, and take advantage of the rally that’s been happening since 2009. We’ve even used this method to track real estate, gold, and cryptocurrencies like Bitcoin.

So if you find yourself wondering whether you’ll even survive the next crash, and you start to wonder whether you’d like a strategy that has outperformed the market going decades back, we just want to let you know that we are always here to help.

Have a wonderful Holiday and an PROSPEROUS New Year.

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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