HISTORY NEVER REPEATS ITSELF...
But it often rhymes!
As we approach the 30th Anniversary of one of the most memorable stock market crashes of the last century, it might do us all some good to remember the old saying: history never repeats, but it often rhymes. Considering the current state of the economic and geopolitical environments, it might be prudent to exercise some risk management practices.
What would a similar drop look like today?
During the Black Monday crash of October 19th, 1987, the market plummeted 508 points, or 22.6%. With the Dow Jones Industrial Index currently sitting at 22,871, a 22.6% drop would be the same as dropping an unbelievable 5,168 points. That would leave the index at 17,703!!
Image Credit: Zerohedge
On June 27th this year, Janet Yellen, head of the Federal Reserve proclaimed "I don't believe we will see another crisis in our lifetimes." Which to me, sounds very similar to Yale’s first Ph. D in economics, Irving Fisher, who stated stock prices “reached what looks like a permanently high plateau” a mere nine days before the stock market crash of 1929. And then again, there was Ben Bernanke who, on Jan 10th, 2008, said: "The Federal Reserve is not currently forecasting a recession."
So how should you prepare?
Well, according to JLFMI President John S. Lyons:
...declines that are the most hurtful typically begin with no seeming warning or at least before any provocation is identified. For example, on July 30, 1990, our model issued a Sell Signal and we sold 100% of our clients’ holdings. On August 2, Saddam Hussein marched into Kuwait and Operation Desert Shield began — as well as a substantial decline in the stock market. Similarly, the completion of selling 100% of our clients’ holdings on account of a Sell Signal on September 4, 2001 was obviously done without any known external provocation. The lesson regarding employment of risk management is that, no, you will not know when to sell by just “having that feeling” or even more remotely, by getting tipped off by the news in the morning paper. That said, many investors do believe that they will know when to protect their holdings.
In summary, risk cannot be removed from the stock market. The Crash of ’87 affected everyone. Crashes will occur again. Wear a seat belt!
Maybe the market is rhyming right now?
Always keep some cash on hand for purchasing opportunities. Consider diversification with precious metals and cryptocurrencies...or better yet, when in doubt, never risk the money you aren't willing to lose. Good luck!
-Randomness
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If a crash is coming then its better to stay away from the market
True, but the timing matters. Had I pulled out when I first started thinking the market would crash, I would have missed out on some pretty significant gains.
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