The Next Big Crash - Are You Prepared?

[kazukirai]

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

This strikes me as lousy portfolio management and this I believe is a problem across all asset classes. If you foresee a high probability of needing the money in the near term, then it shouldn't be in assets that are lliquid/volatile in the first place.

Case in point- many people invested in property were in a similar scenario if they bought that property in '96/'97. Many were underwater until only recently and if they needed to raise money (and I personally know of at least one) during that period, they would have lost money too.

So with respect to Emergency Funds or Expected expenses in the near term- you shouldn't be thinking of stocks in the first place. In fact, it should be all about Capital Preservation.

[shoeboxlife]

Excellent article link shared. Thx bro.

Well if only we have a crystal ball, nothing would be 'emergency' already.

Probably the good old safe deposit box and savings account is still relevant today as far as 'rainy day' funds go.

[safetyfirst]

People always say stocks are better than property as they are liquid and can easily sell when you need the money fast.

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

Food for thought.

If you have lived through a period where property prices drop at the back of a large mortgage 10x or more than your annual income, you will probably speak very differently. You are just plain lucky that singapore property prices appear to be going up only in the past 10 years.

Anyway, the person who parks his cash for short term needs in stocks isnt doing a smart thing

[KopiKat]

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

This strikes me as lousy portfolio management and this I believe is a problem across all asset classes. If you foresee a high probability of needing the money in the near term, then it shouldn't be in assets that are lliquid/volatile in the first place.

Case in point- many people invested in property were in a similar scenario if they bought that property in '96/'97. Many were underwater until only recently and if they needed to raise money (and I personally know of at least one) during that period, they would have lost money too.

So with respect to Emergency Funds or Expected expenses in the near term- you shouldn't be thinking of stocks in the first place. In fact, it should be all about Capital Preservation.

My approach is a bit different.... I can and do sell stocks even when it's at a loss, when I need the cash, be it for sudden personal expenses or for switching to another stock. I look at my stocks investment as one single unit ie. there'll be profits and there'll be losses for individual stocks. What's important is a Net Profit for the whole portfolio, inclusive of dividends and all prices marked to market.

PS. I don't see stocks as being illiquid. I do avoid stocks with low daily volume, unless it's very under-valued. In such cases, I'm prepared for that portion of money to be "stuck" for longer term.

[CityFarmer]

My approach is a bit different.... I can and do sell stocks even when it's at a loss, when I need the cash, be it for sudden personal expenses or for switching to another stock. I look at my stocks investment as one single unit ie. there'll be profits and there'll be losses for individual stocks. What's important is a Net Profit for the whole portfolio, inclusive of dividends and all prices marked to market.

PS. I don't see stocks as being illiquid. I do avoid stocks with low daily volume, unless it's very under-valued. In such cases, I'm prepared for that portion of money to be "stuck" for longer term.

My approach on individual stock depends on its category. Low liquidity isn't an issue for growth/dividend stocks, which suppose for long term. But for "tikam" stocks, it matters. Exit plan is indispensable, and always ready to "run-road" if necessary.

I share similar view as KopiKat, overall P/L should supersedes individual stock P/L. The experience so far, was the losses will always be compensated in later "tikam" or stock owned, if done right.

IMO, emergency money should never used for investment.

[Temperament]

My wild guess: could be a confluence of above few factors (as some forumers have mentioned) plus a major unknown factor/s which strike suddenly, as in major city earthquake?

If it does come, will it be fast and furious? I guess a lot of people can take this. Guts and opportunity mah!

The worst fear is: prices slowly melting away; like a bottomless pit.

So maybe have to divide the bullets in tranches to buy in?

So I really don't know how to go about it.

But one thing is certain: every crisis is different.

I just wonder what could trigger a crash now?

Every crisis is actually more or less the same. What causes the crisis may be different. That's why if anyone says, "this time the Market is different", I bet people who believe him will be sorry in the end. In a crisis, a lot of people or most people think this may be the end of our Capitalistic World - The Market. Sell everything you can sell. No?

[felixleong]

Big investors pause amid tough August

NEW YORK — Wall Street’s big investors are in wait-and-see mode.

There’s been plenty to give them pause this week: The stock market is down and oil is surging as the Syrian civil war escalates. Then there’s the lingering worry that the Federal Reserve will end its stimulus too soon.

The next few weeks promise more big headlines. The government releases its August jobs report and Washington ramps up for a debate on the debt ceiling. Syria is just the latest ingredient in an already volatile mix.

“There have been problems developing in the market for a while now,” said Tobias Levkovich, Citigroup’s chief US equity strategist.

The Dow Jones industrial average edged up 48.38 points, or 0.3 per cent, to close at 14,824.51 yesterday (Aug 29). The Standard & Poor’s 500 index gained 4.48 points, or 0.3 per cent, to 1,634.96. The Nasdaq composite rose 14.83 points, or 0.4 percent, to 3,593.35.

While the selling in stocks appears to have abated for the moment, the trend for the market has been down. The S&P 500 has lost 4.4 per cent since reaching an all-time high on Aug 2, while the Dow is down 5.3 per cent.

With all that uncertainty, there are signs that Wall Street’s more active players — hedge funds, pension funds and mutual funds — are heading to the sidelines.

Last week, investors pulled US$10.3 billion (S$13 billion) out of the S&P 500 SPDR, an exchange-traded fund that is one of the most widely held investments on Wall Street, according to fund tracker Lipper. In the same week, institutional and retail investors socked away a combined $10.7 billion in money market funds, the traditional storehouse for cash when investors aren’t willing to risk it elsewhere.

Nearly 6 per cent of large institutional investors’ portfolios are sitting in cash, the highest since 2009, according to research from Citigroup.

Gold has also seen a rebound in interest. Last week, the most widely held gold exchange-traded fund, the SPDR Gold Trust, saw investor inflows for the first time since February.

“The mentality among large investors is that there is a high potential to get caught,” on the wrong side of the market, said Mr Chris Hyzy, chief investment officer at US Trust.

Growing geopolitical risk like in Syria is almost always damaging to investor confidence. Investors worry that a US-led attack against Syria could draw the country into Syria’s civil war, or worse, fan a larger conflict in the region.

The next big piece of data investors will have to work through comes next week, when Wall Street gets the August jobs report. However, the report is likely to be overshadowed by continued speculation about the future of the Fed’s bond-buying program.

“The market is acting a lot like a patient sitting in a waiting room reading a magazine,” Mr Hyzy said. “We don’t know how good or bad it is, all we know is that the prognosis will come over the next couple days and weeks.”

The Fed has been buying $85 billion in bonds a month since December in a move to keep interest rates low and the economy growing. It is widely expected that the Fed will announce a reduction in bond-buying at its next policy meeting, scheduled for Sept. 17-18.

But Syria — and the risk of Middle East conflict — has raised a new concern for the economy: higher oil prices. Crude oil is up nearly 5 percent this month, most of it coming in the last few days. Oil rose $1.09 to $110.10 a barrel on Wednesday. Costlier oil almost always translates into higher fuel expenses for businesses and consumers, weighing on consumer spending and the economy.

“When you add it all up — the problems in Libya, Egypt, Syria — you’re looking at 3 million barrels a day in potential production outages,” said Mr Nick Koutsoftas, a commodities-focused portfolio manager at Cohen & Steers.

Market observers emphasized that for long-term buy-and-hold investors — the average American with a 401(k) — it’s best not to follow professional investors to the sidelines. Lower stock prices could lead to buying opportunities.

“If you’re looking out three years, there are a lot of positive things going on,” Hyzy said, noting that the economy is slowly recovering, and the US is moving toward energy independence and a revival of manufacturing — both of which could create jobs.

“I would buy, if you have a three-year investing horizon,” he said.

Mr Lawrence Creatura, a portfolio manager with Federated Investors, said the stock market pullback in August has created opportunities to start picking individual stocks again.

Mr Creatura pointed to the retail industry — which has been hit hard by lower profit forecasts and the rise in oil prices — as an opportunity.

“Lower prices make some stocks more attractive,” Creatura said. “Our analysts are extremely busy.” AP

[shoeboxlife]

We can start watching Recession Heroes (Catchup) - Episode 1,2,3 at mediacorpse Toggle to mentally prepare.

[memphisb]

People always say stocks are better than property as they are liquid and can easily sell when you need the money fast.

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

Food for thought.

If you have a huge capital, property investment would be wiser choice.
Retail investors, blue collars have fixed and limited funds.

Considering property investment comes with substantial down payment upfront, it would be more preferable for most of us to invest in stocks with diversified portfolio to get capital gains.

All investments including stocks AND property comes with market and economical risks. Recent government property bubble measures such as the 3 year increased wait time for PRs will definitely have an impact of the seller market at least for the next 3 years with the new PRs.

It is the also the responsibility of the good investor/trader to check if the stock that they are getting are liquid and and future catalyst exist.

Why not you shed some light on why you probably think property investment be more liquid then stocks?

[etan]

Temperament, you are better with words, but I meant the same. TQ!

My wild guess: could be a confluence of above few factors (as some forumers have mentioned) plus a major unknown factor/s which strike suddenly, as in major city earthquake?

If it does come, will it be fast and furious? I guess a lot of people can take this. Guts and opportunity mah!

The worst fear is: prices slowly melting away; like a bottomless pit.

So maybe have to divide the bullets in tranches to buy in?

So I really don't know how to go about it.

But one thing is certain: every crisis is different.

I just wonder what could trigger a crash now?

Every crisis is actually more or less the same. What causes the crisis may be different. That's why if anyone says, "this time the Market is different", I bet people who believe him will be sorry in the end. In a crisis, a lot of people or most people think this may be the end of our Capitalistic World - The Market. Sell everything you can sell. No?