Share market goes belly up - what would you do

Discussion in 'Investment Strategy' started by MTR, 15th Jan, 2020.

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  1. Piston_Broke

    Piston_Broke Well-Known Member

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    Lehman Brothers was put on the "Do Not Revive" list after LTCM.
    Wall ST happily watched them burn
     
  2. kierank

    kierank Well-Known Member

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    Bought them ATF
     
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  3. willair

    willair Well-Known Member Premium Member

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  4. Ross36

    Ross36 Well-Known Member

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    The issue with trying to stockpile cash and buy when "the market" tanks is defining which market and what is tanking enough to warrant buy in? Looking at historical data synchronised global crashes aren't that common, the gfc was one but prior to that the tech bubble in the USA barely affected Australia just as the Asian financial crash of the 90's barely touched the USA. Almost every year you could buy a tanking market using index ETFs, eg.

    China 2018: >33% drop over the year
    Qatar 2017: >33% drop over the year
    China 2016: 20% drop during the year
    Etc

    Or why not target tanking sectors, in 2015 you could have bought an Australian energy shares index fund after a >33% drop over the year.

    For 2014 Russia looks good at a >40% decline.

    You can keep going forever like this.

    So do you define it as broad based Australian index? Our market is tiny a global scale so maybe broad based USA?

    If so you may have a chance next year or not until next decade. I see no reason that today isn't the same as 1989, with a decade of a monster bull market ahead, or 1999 with a big crash coming soon. Most likely we are somewhere between those outcomes though.

    This is why I love superannuation for the masses - it forces the regimented regular buying of diverse shares irrespective of price for most people in the country. This has been shown time and again to be one of the best methods for share investing.
     
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  5. PandS

    PandS Well-Known Member

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    It not so much about stock pile cash and time for the crash well crashes is part of the plan.
    it all to do with my risk management and safe guards capital, my money never sleep it always get invested some where but at different cycle, time and asset.

    Warren Buffet said having cash is equivalent to a call options on all asset class with no expiry date and that exactly what it is.

    you can not have 100% exposure to the market properties or shares or anything

    Because when thing are selling really cheap you got no money to buy while your portfolio is down 40-50%, you then have to wait for a decades for it to recovered

    by having cash ready you can then accelerate that recovery by buy thing cheap and when it recovered you recovered twice as fast as everyone else.

    also having cash ready gives you lot of options
    Because you can never tell about the system liquidity and if you can borrow when you need it most or a combination of things can form that you are not expecting and you stuck without cash and that a bad place to be.

    I stock pile cash all the time it has not diminished my return anything I say it enhance it.

    I dare say a lot people with a lot of debt when the down turn comes most would be too scare to
    Do anything because it can get a lot worse before it get better and you can get wiped out in the process, easy to say when it all sunshine
    But I live through gfc and even with cash and no debt you are scare ... I be frozen at that time if I have high level of debt and possibly got wiped out

    Buffett get rich for his extraordinary capital allocation skills but also his ability to stock pile cash and do deal when no one else has the money to do so, the deal on Goldman and dozen of other during gfc no one can do except Warren because he has cash.

    those deals nest him billions and billions in profit since
     
    Last edited: 17th Jan, 2020
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  6. willair

    willair Well-Known Member Premium Member

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    By the looks on the Dow overnight and the last 5 days then 30-000 will also be broken more quickly then most investors think
    There is a page in Nassim's book ''Fooled by Randomness'' on the bull up the stairs all the bears jump out the windows and ''This Time will be different'' or Their Market was different'' it's never ever different and iv'e said many times over the past year as things are always obvious after the fact anyone sitting on cash on paid advice are going to left behind at the starting gate's..
    [​IMG]
     
  7. Sackie

    Sackie Well-Known Member

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    He will get re-elected . You watch.
     
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  8. Ross36

    Ross36 Well-Known Member

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    I agree wholeheartedly that having 100% exposure to "A" market is a bad idea. For example Japanese shares during their 20+ year downturn in the 90's+, China in 1945, England in 1974 etc. Same goes for having 10 properties all in the same mining town in the mid 2000's.

    You could argue strongly though that having 100% exposure to "THE" equities or real estate market is a fantastic choice for most people though. If you like shares than a broad based international share holding that isn't heavily weighted to a single sector/factor or country will likely do very well long term. Same goes for a property portfolio that has houses in rich and middle class suburbs in Melbourne, Sydney, Brisbane, USA etc. Look at things like the equity returns quilt which shows the power of diversification.

    Do you need/want "cash" though? Isn't that where you would sell one asset to take advantage of another? Draw on equity from real estate to purchase shares and utilise the tax advantages? Use dividends from shares to build a deposit for another investment property?

    Not trying to be disrespectful - but I'm not quite sure what you mean and wanted to clarify. The combination of money never sleeps but then you stockpile cash all the time seems like an oxymoron. When I think of stockpiling cash I'm more thinking of building up cash mountains over multiple years like many people do fearing/waiting for the crash to happen, whereas I think you are referring to consolidating cash when an opportunity arises and striking fast.
     
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  9. MTR

    MTR Well-Known Member

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    i interpret as consolidating cash and when an opportunity arises strike
     
  10. Tofubiscuit

    Tofubiscuit Well-Known Member

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    I have cash sitting in my offset account that I intend to deploy in the event of a 20% or more equity crash.

    Would this be considered as cash?
     
  11. Nodrog

    Nodrog Well-Known Member

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    I don’t consider it as cash in the usual sense as when I draw on it debt increases on the PPOR. Importantly will it be tax deductible?
     
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  12. Tofubiscuit

    Tofubiscuit Well-Known Member

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    On my IP offset accounts so yes.

    Suppose this is an easy asset reallocation away from property to equities. Hypothetically, if markets fall in 12 months time then the value could be found in equities more then property.

    Willing to pay my circa 3.50% borrowing cost where ETF dividend is 5% (VAS).

    Is my thinking off?

    TB
     
  13. Nodrog

    Nodrog Well-Known Member

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    Sorry.

    I used IP offset for buying equities at very opportune times but still looked at it as debt not cash.

    My mentality was cash when available gets invested regularly eg DCA and debt was mainly used conservatively for exceptional opportunities.
     
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  14. Ross36

    Ross36 Well-Known Member

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    I agree - to me that is debt not cash. In essence - but not with respect to tax aspects from my understanding so beware - by using the offset to purchase shares you are loaning the money to buy them.

    Comes back to my question - 20% correction in which index/factor/sector? Every year you can find a large correction in at least one equity market index, so how do you justify waiting for one over the other? This also flies in the face of the momentum factor which indicates that shares doing well will continue to do well.

    More questions such as why 20%? In real or nominal terms? Including or excluding dividends? If you have waited for a 20% decline in the market you've missed this entire bull market in US equities.

    I've been reading/listening to way too much equity investing research lately! The more I explore the more I realise the future is unknown but calling a top is not something anyone can do.
     
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  15. Tofubiscuit

    Tofubiscuit Well-Known Member

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    @Ross3 Lets say -20% nominal on ASX300 (excluding dividend). So I be buying the VAS ETF with that.

    As to tax, it is my understanding as long as the money is used for investment purposes (income generated will be taxed) then the interest will be deductible.
     
  16. PandS

    PandS Well-Known Member

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    P
    I stock pile cash when I have a stock that gone up so much in value I have to sell out some to rebalance my risk and safeguard the gain, I don't necessary need to buy anything, I can let it sits there until I find something I want to deploy that cash to.

    with large cash pile and nothing much to do, I go looking for large cap dogs where price has fallen so much or gone no where and I think it is safe I write naked put on them.
    last few weeks I wrote 2 naked put on TAH with strike 4.40 (March) and 4.30 (April)
    for that I pocket a few thousand in premium, it now trading $4.75
    that what I mean by my money doesn't sleep even in stock pile mode

    barring any major crashes or some shocking result, I should pocket the premium free and if it comes to pass and fall below those price I am more than happy to own TAH at those price.

    now crashes can come any time and if it happen to be now or tomorrow or next year I always has cash ready to deploy into the business I want, I have a hit list I buy when there is a correction or crashes I don't care what going around I just buy, I know the business, I know the management, I know their balance sheet, I just execute the plan.

    I am not waiting I am not timing, I just full circle risk management and if crashes does come I am well cater for it
     
    Last edited: 17th Jan, 2020
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  17. Willy

    Willy Well-Known Member

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    Currently selling down geared share fund after approx. 60% return for 12 months and around 16% average over the last 5 years.
    You don't want to be heavily invested in those things in a crash. Store the profits elsewhere (not shares) and continue investing monthly into the geared fund.
    Repeat, repeat , repeat...been riding the waves in this way for 25 years with regular investment into geared funds.
    Just need to make sure you take profit when profits are good, get too greedy and you can slip over the edge......luckily it hasn't happened yet!

    Willy
     
  18. MTR

    MTR Well-Known Member

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    Sounds smart way to go
     
  19. wylie

    wylie Moderator Staff Member

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    Sounds like a good plan but where do you store the cash?
     
  20. willair

    willair Well-Known Member Premium Member

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    Willy, after reading your post you have a very good understanding as you would after 25 years..

    Psychologists sometimes call the effect of simple comparing to a given reference as anchoring something you may understand very well from what our daughter tell me every now and again

    But the question is unless you have a safe with a 5 hour fire rating set with chemical fire rated anchor fasteners
    where do you store the money ..