Why You Should Stop Predicting Stock Market Crashes
Even a broken clock is right twice a day.
Buy low, sell high?
If you hold on to this mantra, chances are, you are one of those who buy high, sell low.
If you like watching finance-related topics on Youtube (like I do), you will realize that many Youtubers like to talk about market crashes. Why? Because we humans tend to respond to bad news more than the good ones. It’s human psychology.
Youtubers want views, so they will capture other people’s attention by saying things like “The next crash is here!” or “Sell your stocks before it is too late!” or something along those lines. Every year, such topics will appear on Youtube. Don’t believe me? Search it up yourself.
Let me tell you why you should stop listening to such Youtubers who always try to predict that a crash is coming.
Because every year, there will be a reason to be fearful of a market crash. Let me give you some examples:
- 2012: Potential Greek exit from Eurozone
- 2013: US government shutdown
- 2014: Collapse of oil prices
- 2015: Greece debt crisis
- 2016: Brexit
- 2017: Bank of England raised the interest rate for the first time in more than 10 years
- 2018: US-China Trade War
- 2019: US President Impeachment
- 2020: Covid-19 as a global pandemic
- 2021: Threat of inflation during the economic recovery of pandemic
- 2022: (as of now) Possible war between Russia and Ukraine
I have traced back events happening over the past decade, and as you can see, there will always be things to worry about.
So, what if you succumb to the pressure that a market crash is coming, and you end up selling off all your stocks? I will show you what happens.
You would have missed out on a 246.13% gain, assuming you invest in the S&P 500 index. What this means is if you are good at identifying quality companies, you will lose out more than 246.13% in profits. Painful?
You missed out on the opportunity to compound your money just because someone said the market is going to crash.
I have friends telling me that Michael Burry is a great investor because he predicted the 2008 housing market crash.
Well, he did predict the 2008 crash. But he also predicted multiple other crashes the years following, and those crashes did not happen.
Even a broken clock is right twice a day.
If I were to predict a market crash every year for the next 10 years, I am sure I will get it right at least once. But, I am also sure that I will end up losing more money waiting for that crash to happen, than to stay invested and ride the volatility with Mr. Market.
Lessons to takeaway
- There will always be issues to worry about when looking at the macroeconomics and the geopolitical developments, so just focus on the quality of the business that you are investing in instead.
- Remain invested in the stock market and don’t sell off your stock in anticipation of a crash. Sell only when the fundamentals of the businesses have changed.
If you like what you are reading, you might want to check out my previous finance-related article about The Hardest Part In Investing In Order To Achieve Superior Returns. They are somewhat related to one another, both emphasizing on the idea why we should stay invested.
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