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 there are seasoned investors who visit or subscribe to Gumshoe who have been through 2008, some have been through previous crashes too. They would be bound to know a lot about wealth preservation. Even if I don’t see direct posts from any of them here, I’m going to research the archives for articles and comments by Travis that are relevant to this topic. Just phrasing the topic questions brought me more clarity on the subject, and I think just reading the questions is likely to help somebody else, somewhere, who otherwise wouldn’t have thought about this at all.
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 last time the TED spread went over 50, in late 2011, it presaged a three year bull market without any meaningful corrections. I suspect that following the TED Spread would be a good way of looking for a future credit crisis, but I doubt that the next crisis will be caused by credit risk and counterparty risk… my guess would be that the next crisis will be very different from the last one.”
http://www.stockgumshoe.com/reviews/dailywealth-trader/dailywealth-trader-recommended-going-long-a-special-gold-fund/
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 bubble burst twelve years prior.
2) 10% or more of one’s portfolio should already be in such stocks, in my unhumble opinion. That’s because there are always markets open around the world, and they can be very unstable and “shockable.” You don’t want to wake up one morning to find out that you’ve missed a good entry point because some triggering event on the other side of the world has caused a panic, even possibly an unprecedented run on gold and silver.
3) That 10% or more does not have to be just left there in the few precious metal funds you decide qualify for your list. You can keep shifting money between them, and do very well with price moves as small as 5 to 10 cents, once or twice a week. In that way you can keep growing this particular trading fund without worrying. When one goes down, great! Time to buy a lot. When another goes up, great! Time to sell that one, and buy a lot of one which is down. The most important factor is the criteria you use to decide which funds are of high enough quality to make your list. That’s a work in progress for me and I hope to keep improving upon it.
4) Anything outside of precious metals funds increases the risk. Personally I also trade in good uranium stocks, but others certainly would not agree with me about their future in a time of financial crisis.
5) I expect there are day traders using a strategy like this, it certainly seems to me like a safer way to day trade. If this continues to work out as well for me as it has, I might even end up a day trader eventually – again, something I never thought I could possibly be interested in! A relative fell flat on his face when he tried day trading. But failures don’t mean there aren’t safer, smarter ways to do it.
6) This strategy (could call it “swing trading with a golden safety net”) has nothing to do with one’s long-term value investing picks. Obviously it’s always good to be invested in large companies which have done well through good times and bad, and can be expected to in the future.
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 faith is destroyed in the soundness of money and may remain so for a long period.
Goods are called that because they are a good thing to have for survival.
One of your best assets should be friends, family and neighbors you know and trust.
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 that about 85% of biotech stocks are junk), aren’t we lucky to have access to expert info on which stocks are great or promising, without having to pay big bucks for it or investing thousands of hours ourselves? Personally I’m having a great week with my strategy here without having had to spend more than an hour on it this week, guess what I actually find stocks kind of boring and would rather focus on my own chosen work, which though sporadic, really gets those creative juices flowing… got to go now (no bladder jokes please) and not checking email or this site until Saturday.
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 learne