The Time Machine: What’s the best way to protect ourselves against the next market crash?If you had a time machine, and could go back to 2007, which stocks and other investments would you hold, buy, or sell? How about 1999, or even 1929? Do the best investments just prior to all market crashes have anything much in common?
How likely would your picks be to maintain, increase, or recover their value during and after the next crash?
Are you not worried, because you know you are invested in great companies, so can securely ride out a crash until the market resurges – which it always does? Do you see a drop like that as a good thing, because you can buy great stocks at bargain prices?
Or are you concerned enough to want to keep at least 10% of your investments in ”safe havens” – if so, what do you think the best ones are?
Do you think, like Travis does, that the next crash will be very different from the last one?
Do you think it is more likely to be caused by a cyclical panic sell-off, by bad government policies, by corrupt banking practices, by disruptions or shifts in the world monetary system, or some combination of these?
All thoughts, opinions, personal stories, and quotes from useful sources are welcome. Let’s share information, and learn from each other. Let’s figure out the best way to prepare, so we can have peace of mind and not be so fixated on financial and economic news that we don’t fully enjoy life.
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
“No stock market has out-performed the American over the long run. One estimate of long-term real stock market returns showed an average return for the US market of 4.73% per year between the 1920’s and the 1990’s.” – p. 126
“Nothing illustrates more clearly how hard human beings find it to learn from history than the repetitive history of stock market bubbles.” – p. 123
From “The Ascent of Money” by Niall Ferguson, 2008 paperback edition.
So – two days ago I pulled half my silver coins out of the storage vault and sold them to double my trading account. Before this year, that’s about the last thing I thought I’d ever do. I put in my limit orders for Tues. a.m. – feeling pretty good about my strategy – then started to feel a little uncomfortable about it. Wondered if I’m missing something, now that I’m more deeply investing in stocks. I may think I’ll be positioned to do well no matter whether the market keeps heading up for years, or crashes this month. But… Read more »
Just now becoming a new irregular, I have not read Travis’ comments concerning “…that the next crash will be very different from the last one.” Has he written how it will be different … longer, deeper, more swift … ?
Tim Wood, of cyclesman.com, would disagree with the basic statement. His research says that all have the same basic ‘DNA markers’ as a prelude to the crash.
Rick
Actually Travis used the word “crisis” not “crash”, here’s his comment which was a response to comment #10 under the the article linked below: I think the TED Spread is perhaps an indicator of credit risk — though we now know that LIBOR was essentially a made up number manipulated by banks for many years. If you look at a longer term relationship between LIBOR and the S&P 500 it seems to me that the spread was perhaps an early indicator of the credit crisis that took down markets starting in 2008… but otherwise the two aren’t particularly connected… the… Read more »
Maybe Travis did use the word “crisis” but you used the word “crash” in the 4th paragraph of your article”:
“Do you think, like Travis does, that the next crash will be very different from the last one?”
That’s what rick pionkowski was quoting.
Just for the record.
Yes, sorry Rusty I was really correcting myself not you! And should have thought to say that.
I mean “correcting myself not Rick”. As an endless fountain of errors lately, I think I’ll get some sleep and come back tomorrow, I had a post on the real history of gold confiscation planned for today but it can wait a day. That’s a subject that the extremists on both sides have distorted a lot so I want to lay out what really happened with actual reliable references that anyone can check.
I’ve adjusted my strategy slightly, and am feeling very comfortable with it once again. Here it is, for anyone either interested or willing to play devil’s advocate: 1) When the markets get nervous, precious metal funds always go up until people calm down again. When markets crash, those funds (and good mining stocks) keep going up for quite a while, sometimes years. If this is news to you, look for yourself – you might start with the $SLV chart, from October 2008 to present. Even better, look at what happened to gold and silver spot prices after the Internet stock… Read more »
I see nothing I would disagree with. I have HL as a core holding and have done well selling covered calls against it. Also small lots of Sprott phys gold and silver funds,Sand for royalty and misc. others. When the market crashes I think it will happen at lightening speed given how the world financial structure never sleeps. The world is operating on a vapor money supply IE the ability to tax by governments and the ability of debtors to repay based on assets and future earnings. Future earnings are ephemeral and so is the ability to collect taxes when… Read more »
I like the idea of a list of high quality gold / silver stocks to trade around. Like many others, I’m holding quite a few losers in precious metals equities, keeping them for the possible moonshot. In addition to your best assets list, Arch1, I would add a reliable rifle and ammunition.
jack I am well equipped tho I have no intent of doing a Custers last stand ,,,,,,firing off a 12 gauge shotgun at night [ala Joe Biden] does earn the notice and respect of the neighbors.
Farmers and ranchers all have guns for “predator control” and practice the three S system,,,shoot shovel and shutup,,,,,,and we all respect each other. Few coyotes and feral dogs here-abouts.
Patricia, would you care to give more details on your strategy in #3? I got into mining stocks around 2007 and am sitting on a substantial loss. I’m mostly still holding because the underlying concerns that got me into them in the first place are unchanged, but it would be nice to do something more intelligent with the funds in the meantime. Fortunately I am a bit ahead on physical gold/silver, no plan to sell those.
bezoar, I have no details to offer, it’s a work in progress, and you are better off reading everything Travis has said on mining stocks. (You can just search this site with “gold” to get some good results). I don’t plan to become an expert on mining stocks, not interested enough to spend all the time, and figure why should I when I have so much reason to trust the folks behind SGDM? And Travis’s occasional analysis of majors? I think Rick Rule said that about 80% of the junior mining companies are junk (I think Dr. KSS mentioned once… Read more »
Hi Patricia, thanks for your reply. More specifically, I wanted to stay in the precious metals space but don’t have the time or knowledge to stay on top of the mining stocks. Was curious about which precious metal funds you have been using. Your strategy makes a lot of sense and would be a good way for me to diversify out of these individual miners. If you don’t feel comfortable elaborating more on your strategy, no worries. I agree with you completely about the majority of mining and biotech stocks being junk… I have learned this the hard way, and… Read more »
Amen to that bezoar! SGDM is my favorite, I tend to favor Eric Sprott’s endeavors because he saw and sees the “financial house of cards” rottenness which hurt the world economy in 2008 and is going to hurt us further. I’ve been listening to him since about 2007. His biggest mistake was in trying to make actual predictions about where the prices of gold and silver would end up in how many years. He’s stopped trying, it’s unknowable. I can easily forgive anyone for those mistakes though because NOBODY dreamed that central banks would do the insane things they’ve now… Read more »
SGDM: For heavens sake….between September 2014 and now you would have lost 20+%. I thought you were trying to guard against a mere 10% loss ! Looks like youre creating your own crash.
Thanks for the recommendations. I think I will sell the individual stocks and convert to SDGM or GDX. Are you trading back and forth between mining indexes and gold backed funds for your strategy? I will have to look at some charts to figure out one of my own. I have previously owned CEF which is backed by holdings and not a “paper” fund, probably similar to the other ones you mentioned. Unfortunately tax issues can get complicated in these allocated funds, which was one advantage of miners. Yes I fully agree with you to be cautious any time someone… Read more »
Alan, re: SGDM: you are anti-gold, pro-cash, you’ve made that clear. So I wouldn’t expect you to think that this is an excellent buying opportunity for this fund. But you’ve also said you’re a buy-when-there’s-blood-on-the-streets guy. Mining is cyclical, and is in a bottom (unloved) right now. This sector has its own blood-on-streets phases. If it goes down more, I’ll be even happier, because it gives those of us who like precious metals as a safe haven even more opportunity before it moves back into an uptrend – which it always, always, does eventually. Read Travis’s analysis of SGDM if… Read more »
I have a problem with that word DIVERSIFY. If I back all the horses in a race, will I profit or just lose more slowly? So, if Im gonna lose (which of course I would) would I be better to invest in T Bills, which return less than inflation, or stick my money in a ‘high’ (ha ha) bank deposit? In short, if all I want to do is preserve capital, wheres the least loser? Given that all the well paid bankers, hedge funds, economists, casinos, bookies etc have a hand in my wallet…..is there such a thing as a… Read more »
Absolutely Alan dividends and DRIPS in Aristocrats IMHO Best2ALL!-Benjamin
From zacks, relevant to this thread if it works:
Consequences of the Stock Market Failing
http://finance.zacks.com/consequences-stock-market-failing-5834.html
Best2ALL!-Benjamin
That seems to be pretty much the standard view based on the last half of the 20th century.That said I feel it is a little too simplistic as we are now experiencing things that have never been seen before in the history of this nation and perhaps the world. I am not prepared to go to length here but the bank bailout [crony capitalism in my view} and the subsequent actions of a greatly politicized Fed. in bringing interest to essentially zero which has forced huge amounts of money into the stock market artificially pumping it up is readily seen.… Read more »
I think I agree with both of you: the Zacks article is a good basic description of the downward economic spiral related to market crashes – but “unprecedented” is a word we hear all the time now in regards to global gov’t debt, central bank policies, and the trillions in derivatives held by investment banks and hedge funds. One of people who tried to sound the alarm before the 2007/2008 financial crisis is Janet Tavakoli, and what I like the most about her is that she’s an expert on derivatives – one of the most complex subjects on Earth –… Read more »
Patricia thank you for the link,,I had not previously known of Janet Tavakoli , but I tot.ally agree with her, It is painfully obvious to me that the fraudulent housing bubble and resultant failure could not have happened without venial complicity of the Govt, including both political parties. In my opinion a certain Barney Frank acted as the best Senator money can buy and his legacy is ongoing and being built upon by others. I think of the scene in DR. Frankenstein’s Monster when the peasants arm themselves with pitchforks and torches and go hunting.
Seems to me to be all a question of timing (what isnt?). I started trading straight after the 2007/8 crash and invested with Martin Weiss through something called The millionaire contrarian portfolio (spit!!). I was totally naive in those days. He advocated leveraged shorting of the $ and buying gold at $1800 per oz. As you can imagine, that hasnt worked out too well since then and it simply has to be the worst rated investment strategy on the net. But of course, had he been right, he’d have been beatified (a rare privileged for a Jewish guy 🙂 .… Read more »
I was hoping you’d show up here Alan, a contrarian viewpoint to keep us thinking and questioning our approach – by “our” I mean we who think PMs are a safe long-term bet. I think of them more as a savings account that can never go to zero, and as insurance against the clueless folks who always seem to end up gaining political power everywhere on this amazing, beautiful, but chaotic planet of ours. You’re right, my main question can’t be answered with any certainty – but the focus here is intended to be how to prepare for something less… Read more »
Ah! Then the answer is simple. 2008, Have enough cash to last you 2 yrs ….forget whatever stock you own….drink G&T’s, and youll be back into a hazy profit by 2010. You see, if you have more than enough cash in the bank, neither fear nor greed is a problem.
I guess you trust cash and banks more than I do Alan! I’m a bit of a history buff. Governments have always ended up spending so much on wars, poorly designed social programs, and corrupt siphoning of public money, that the currencies they issue end up failing. The world doesn’t end each time it happens, but there sure is a lot of pain until the defaults play out.
And the US gov confiscated all the gold less than 100yrs ago. It had no legal cash value…..while cash (however depreciated) bought carrots. Now we get back to investing in essentials. Thats NEVER been illegal. In any event, I thought we’d agreed a 10% crash….not a total breakdown of the whole social/banking system.
Interesting Market Watch article- UPDATE: Why the U.S. stock market is one of the most dangerous in the world By Brett Arends, MarketWatch Some global markets are cheap by historic standards, but not here Which are the most dangerous markets to investors around the world? Which countries’ stock markets are most likely to blow up your retirement plan, your kids’ college funds, or your hopes of saving up enough to buy that yacht? If you think it’s markets such as Russia or Greece, or even China, you may want to think again. According to some fascinating research produced by Wellershoff… Read more »
Thanks Benjamin – I’d read that MarketWatch article yesterday but your post puts it into much better perspective. The “historic standards” you refer to are exactly what a euphoric market tends to ignore, as I understand it.
The best article by Travis that relates to this thread (that I’ve found so far anyway) is: http://www.stockgumshoe.com/reviews/disruptors-dominators/finishing-up-the-annual-review-plus-the-greatest-gold-opportunity-in-the-last-decade/ Here are a couple of sections: “I still think it’s important to have a small allocation to gold and silver as part of a long-term savings plan to protect against currency depreciation (all modern currencies depreciate, they lose value over time… though not always against each other), and I like to speculate on the occasional gold-related or mining equity, but it’s probably important, every time you look at a mining stock, to remind yourself about just how lousy a business mining is…”… Read more »
Stocks lost 60% in 2008…and have now recovered 200%……gold (from $1900) has lost 40% and keeps falling. Cash has lost 0% relative to gold and stox. Only inflation hurts cash and everything liquid suffers from that. Gold , apart from teeth (ugly) paperweights (a brick does as good), only has one use and thats for wedding rings, which, unless youre the poorer partner or a divorce lawyer, are the worst investment on this planet. Invest in essentials: a roof with some land and a lake (or sea), loads of cash and some ammo as an insurance policy….. And sod the… Read more »
But Alan, you are pricing everything in U.S. $, over a term of about 8 years… if you think benevolent geniuses are running our government and the Fed, and any day now will start instituting sane policies so that the structural economic changes we need have a chance to come about – then I can understand your long-term faith in the dollar. You get the last word if you want it because now I’m late, got to go!
Its not the $, its the fiat system. We simply cannot go back to swapping beans for carrots. Never mind…if you gotta go, you gotta go. Far be it from me to delay a lady with a full bladder.
Alan, I wasn’t trying to ditch our debate, before your comment I’d already posted that I had a busy week and would be back Saturday. Anyway, I agree with you on two counts: gold is a terrible investment (I don’t consider it an investment, I consider it a safe form of savings or insurance in case of financial crisis and especially a currency crisis). And we are in a fiat system, and have to operate within it, and may very well never return to any form of currency backed by tangibles of any kind. But until, if ever, world leaders… Read more »
The only completely sure way to not lose is to have nothing to lose. The problem with cash is that it can totally lose its value. Iraq ,Zimbabwe, Brazil.Chile,Argentina. Germany as some examples in just the last 100 years. Wealth preservation is usually best in having what people need and what people want. Often the want is more profitable than the need for the reason that your goods may be ” morally” stolen from you for the justification/ excuse that the need must be met. It is entirely possible to have a market crash and still have a good economy… Read more »
Exactly Frank! I think of gold and silver as compact commodities. If there were some form of pork bellies that never spoiled, and could be magically miniaturized so they didn’t take up much room until needed, that would be just as good for me as a store of value. (Though I don’t suppose miniature pork bellies would make very attractive jewelry, so I guess PMs have an advantage there.)
I wonder if I’m the only one in my neighborhood who is happy whenever I see my primary stock watch list completely in the red. I sure doubt it. What a great week to buy the ones on my short list.
I have to get back to work, very busy this week. I’m so pleased with the posts from others that turned up here, from several of my favorite (and smartest) subscribers: thank you! You guys are serious investors, I’m small-time and a rookie, so your comments are super helpful. I’ll check back in Saturday.
Made the mistake of checking my email before Saturday and seeing Alan’s last post so here I am for a couple of minutes.. I also wanted to clarify something in post in #10: I meant “several of my favorite (and smartest) GUMSHOE subscribers.” I certainly don’t consider posters here my “subscribers”, in fact didn’t expect this discussion to last all that long, but I’ve already gotten plenty out of it so would fade away happy even if it never got another response.
Patricia this sure seems to be an attempt of the use of reverse psychology as I understand it [;-]-) Shalom, Benjamin
Ha – I can see how you’d think so Ben, but I meant it. I’ve now read your post #10 three times along with two of Frank’s. I assure you you’ve helped me immensely (as well as some lurkers probably). I’ve been fed, I’m not like the plant in “Little Shop of Horrors”, so won’t be expecting or demanding attention! From you and Frank I’ve gotten reassurance and additional perspective/info on this approach: from Alan I’ve gotten challenges, and both have been very useful. If any of you post here in the future it should be only because you feel… Read more »
I truly appreciate your jena se qua Patricia. One of the avenues I walk is utilizing the TVIX as insurance at ALL times. Best2ALL!-Benjamin
Correction Ben: I’ve read your post #7 several times (not #10). Really excellent.
Sogiam: Now this is where Im a dim newbie. WTF is TVIX all about. I read yahoo profile and still didnt understand it. Thanks in advance for your explanation.