Thursday, February 1, 2018

Are We Headed for Another Big Market Crash?

Are we headed for another big market crash?

Betteridge's Law of Headlines says no. But history—and the perceptive blogger Wealthy Accountant—says yes.

Over the past few months, I've been getting a bad feeling about the market. When everybody marvels at how well the stock market is doing, that's not usually a good sign. When dealing with something like the stock market, which is partially driven by irrational speculation and knee-jerk reaction to unpredictable events, the best play is to zig where others zag.

But hey, don't take it from me. Take it from the most successful investor alive:

Wise counsel, Warren Buffett...

Here's a link to the Wealthy Accountant's perspective. He does a good job of telling people not to time the market, but his caution against picking this moment to jump in with both feet is wise.

I left a comment on this article, to the effect that I suspect that a severe correction will occur in 2018. I hope I'm wrong, but the behavioral indicators (combined with the ever-increasing surge in the stock market) are veritably screaming that a downturn is coming.

Ten-year history of the Dow Jones Industrial Average as of January 29, 2018. 
Check out that recent uptick! Looks like the makings of a bubble to me...

And here's a link to one summary of Joe Kennedy's famous (and possibly apocryphal) story. "When the shoeshine boys have tips, the market is too popular for its own good."

I haven't seen any shoeshine boys lately, but I have seen a proliferation of blogs and other Internet "experts." I wonder how long they'll all last if the Dow Jones' 177-point drop of January 29th, 2018 precedes a continuous, month-long drop...

Long-term, my advice has been—and remains—to stay the course. But short-term...well, I'd recommend caution.

It's foolish to put all your eggs in one basket. Doubly so now that the stock market is almost certainly approaching the end of an impressive run!

In a time of exuberance about the market, you should not follow the herd. The greater stability of bonds are probably the better move at the moment.

But after people have lost lots of money and the general attitude about the market is somber...that's when it's especially important to remember that in the long-term, the market always goes up.

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