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The Next Big Crash - Are You Prepared?
21-05-2013, 08:58 AM. (This post was last modified: 31-05-2013, 08:20 AM by felixleong.)
Post: #1
The Next Big Crash - Are You Prepared?
The S&P had 2 major peaks and crashes, 1st was the dot com bubble in year 2000 and 2nd was the financial crisis in year 2007.

[Image: crash+1.png]

Currently we are in the 3rd and final installment of the US BOOM trilogy.

[Image: crash+2.png]

For the STI, the first real big crash was the 1997 Asia Financial Crisis as the STI came down from the 2400 level to about 900 level a super 60% mega bear correction.

We were also affected by the 2000 Dot Com Bubble, as the STI fell from 2400 level to about 1300 level, a 45% bear correction.

For the recent Financial Crisis, 3800 level was the peak and it came as low as the 1600 level another painful 55% bear correction.

From the 2009 bottom to the present 2013 its been 4 years of recovery, as we know from history no single bull market has lasted forever. The bull mat continue going for months or years but it wouldn't last indefinitely.

Chart wise I think there may still be upside however its definitely a lot less than the potential downside, given that if the next big crash does happen, we will probably see the market lose about half its value. STI going to 1600-2000 level is very possible base on the history we have seen so far. So overall its like 10-30% upside, 20-50% downside possibility.

Interest rates may continue to stay low for some time and the market may continue its upward trend, its extremely difficult to predict when interest rates will go up and when the market will take a sudden shock leading into a major market crash.

Since you and I can't accurately predict the future, the best we can do is prepare for it. In a fire sale the most important thing that you wanna have in hand is cash, cash and more cash!!!

I would suggest keeping at least 10 to 20% of your portfolio in cash. You can put it in your local fixed deposit for a yearly interest rate of about 1%. Any time the opportunity comes you can just draw it out, forfeit the interest and start your bargain hunt on down beaten blue chips.

I'm currently about 80% in equities and 20% in cash. If the STI goes back to the 3800 level I'll probably wanna re-adjust to something like 70% equities and 30% cash. So the general plan is to hold a basket of shares to enjoy the dividends and capital gains, as the market rises higher and higher its really okay to take some capital gains and put it into cash. If we reach a level like STI 4200, I'll probably be like half invested and half in cash.

There are investors that are really worried about a crash and they hold like 100% in cash, waiting for the big sale. But the problem is, their hard earned money is gonna get eaten by inflation if the market goes sideways or upwards for like 2 to 5 years straight, the value of their money is gonna shrink a lot. Even if the market does corrects like maybe 10% or 20%, how much of their cash are they gonna shift into the market? If they are so scared now, they will probably be scared when it comes and they just can't effectively make the best use of their cash.

If you wanna sleep well at night like I do, a cautious balance approach seems ideal.


Regards,
Felix aka pipi486

http://stockbrokerplayspoker.blogspot.sg...crash.html

I'm new to writing this kinda stuff, please feel free to comment or give suggestions thanks

http://stockbrokerplayspoker.blogspot.sg/
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21-05-2013, 09:03 AM.
Post: #2
RE: The Next Big Crash - Are You Prepared?
Felix,

Which stage do you reckon we are in now?
Bull-markets are born on pessimism
grow on skepticism
mature on optimism
die on euphoria

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21-05-2013, 09:21 AM.
Post: #3
RE: The Next Big Crash - Are You Prepared?
(21-05-2013, 09:03 AM)Salty Wrote: Felix,

Which stage do you reckon we are in now?
Bull-markets are born on pessimism
grow on skepticism
mature on optimism
die on euphoria

We should be at maturing stage, going into euphoria soon......
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21-05-2013, 09:40 AM.
Post: #4
RE: The Next Big Crash - Are You Prepared?
(21-05-2013, 09:21 AM)Dividend Warrior Wrote: We should be at maturing stage, going into euphoria soon......

How did you determine this? Anecdotal evidence?
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21-05-2013, 10:07 AM.
Post: #5
RE: The Next Big Crash - Are You Prepared?
(21-05-2013, 09:40 AM)Musicwhiz Wrote:
(21-05-2013, 09:21 AM)Dividend Warrior Wrote: We should be at maturing stage, going into euphoria soon......

How did you determine this? Anecdotal evidence?

Base on articles published on papers and magazines, generally it is still more pessimism than optimism IMO.

Base on the theory, we are at the born of bull-market, aren't we? Big Grin
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21-05-2013, 10:21 AM.
Post: #6
RE: The Next Big Crash - Are You Prepared?
(21-05-2013, 10:07 AM)CityFarmer Wrote:
(21-05-2013, 09:40 AM)Musicwhiz Wrote:
(21-05-2013, 09:21 AM)Dividend Warrior Wrote: We should be at maturing stage, going into euphoria soon......

How did you determine this? Anecdotal evidence?

Base on articles published on papers and magazines, generally it is still more pessimism than optimism IMO.

Base on the theory, we are at the born of bull-market, aren't we? Big Grin

Great stuff.. thank you

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21-05-2013, 10:23 AM.
Post: #7
RE: The Next Big Crash - Are You Prepared?
Can someone tell bros here any website to calculate & determine the equity risk premium for STI now? This ERP figure is quite a good statistic to time market exit and entry.

This bull seems to be driven more by liquidity more than sustained economic recovery. Except for oil n gas where oil drilling and Myanmar & Indonesia new markets, the rest are just in slow growth mode.

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21-05-2013, 10:25 AM.
Post: #8
RE: The Next Big Crash - Are You Prepared?
The market index generally is up with modest volume. I don't see any sign of optimism yet.. and euphoria is still far.. It seemed lots of pessimism... Even if indices are reaching the historical resistance, it seemed that many players are yet to be in...

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21-05-2013, 10:56 AM.
Post: #9
RE: The Next Big Crash - Are You Prepared?
not everyone is "sucked in" as yet...
Still far from irrational exuberance

When every where u go and everyone is mad about equity, this is the time the musical chair counts down...

hoho

(21-05-2013, 10:25 AM)shareinvestor1 Wrote: The market index generally is up with modest volume. I don't see any sign of optimism yet.. and euphoria is still far.. It seemed lots of pessimism... Even if indices are reaching the historical resistance, it seemed that many players are yet to be in...

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21-05-2013, 11:07 AM.
Post: #10
RE: The Next Big Crash - Are You Prepared?
(21-05-2013, 08:58 AM)felixleong Wrote: The S&P had 2 major peaks and crashes, 1st was the dot com bubble in year 2000 and 2nd was the financial crisis in year 2007.

[Image: crash+1.png]

Currently we are in the 3rd and final installment of the US BOOM trilogy.

[Image: crash+2.png]

For the STI, the first real big crash was the 1997 Asia Financial Crisis as the STI came down from the 2400 level to about 900 level a super 60% mega bear correction.

We were also affected by the 2000 Dot Com Bubble, as the STI fell from 2400 level to about 1300 level, a 45% bear correction.

For the recent Financial Crisis, 3800 level was the peak and it came as low as the 1600 level another painful 55% bear correction.

From the 2009 bottom to the present 2013 its been 4 years of recovery, as we know from history no single bull market has lasted forever. The bull mat continue going for months or years but it wouldn't last indefinitely.

Chart wise I think there may still be upside however its definitely a lot less than the potential downside, given that if the next big crash does happen, we will probably see the market lose about half its value. STI going to 1600-2000 level is very possible base on the history we have seen so far. So overall its like 10-30% upside, 20-50% downside possibility.

Interest rates may continue to stay low for some time and the market may continue its upward trend, its extremely difficult to predict when interest rates will go up and when the market will take a sudden shock leading into a major market crash.

Since you and I can't accurately predict the future, the best we can do is prepare for it. In a fire sale the most important thing that you wanna have in hand is cash, cash and more cash!!!

I would suggest keeping at least 10 to 20% of your portfolio in cash. You can put it in your local fixed deposit for a yearly interest rate of about 1%. Any time the opportunity comes you can just draw it out, forfeit the interest and start your bargain hunt on down beaten blue chips.

I'm currently about 80% in equities and 20% in cash. If the STI goes back to the 3800 level I'll probably wanna re-adjust to something like 70% equities and 30% cash. So the general plan is to hold a basket of shares to enjoy the dividends and capital gains, as the market rises higher and higher its really okay to take some capital gains and put it into cash. If we reach a level like STI 4200, I'll probably be like half invested and half in cash.

There are investors that are really worried about a crash and they hold like 100% in cash, waiting for the big sale. But the problem is, their hard earned money is gonna get eaten by inflation if the market goes sideways or upwards for like 2 to 5 years straight, the value of their money is gonna shrink a lot. Even if the market does corrects like maybe 10% or 20%, how much of their cash are they gonna shift into the market? If they are so scared now, they will probably be scared when it comes and they just can't effectively make the best use of their cash.

If you wanna sleep well at night like I do, a cautious balance approach seems ideal.


Regards,
Felix aka pipi486

I'm new to writing this kinda stuff, please feel free to comment or give suggestions thanks

I like what you wrote. Personally, I am getting cautious as well. Currently, I'm 75% stocks and 25% cash. Perhaps the so-call "When every where u go and everyone is mad about equity" is not yet manifested from the people you know, but in this digital age, I am seeing a lot of such optimism in the forum pages. Don't know if that should count now instead.

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