Is waiting for a stock market crash to invest a viable strategy?

[ENP]

The "value investor" concept I personally think just makes sense. After reading Ben Graham and Warren Buffet books it is the type of investing that is relatively simple to pick up and learn.

Saying that...

If the whole idea is to buy good companies for less than they are worth, then stock market crashes provide a great time to do this.

However, stock market crashes only come around every so often. What happens to the value investor's investments when the stock market in general isn't in a crash/recession, etc.

 

[nioka]

The "value investor" concept I personally think just makes sense. After reading Ben Graham and Warren Buffet books it is the type of investing that is relatively simple to pick up and learn.

Saying that...

If the whole idea is to buy good companies for less than they are worth, then stock market crashes provide a great time to do this.

However, stock market crashes only come around every so often. What happens to the value investor's investments when the stock market in general isn't in a crash/recession, etc.

I waited 50 years for the last one. A recession comes every 10 years or so but crashes have a 40 to 50 year gap. There are plenty of companies selling right now for less than they are worth. All you have to do is find them.

 

[So_Cynical]

The "value investor" concept I personally think just makes sense. After reading Ben Graham and Warren Buffet books it is the type of investing that is relatively simple to pick up and learn.

Saying that...

If the whole idea is to buy good companies for less than they are worth, then stock market crashes provide a great time to do this.

However, stock market crashes only come around every so often. What happens to the value investor's investments when the stock market in general isn't in a crash/recession, etc.

I was reading something about this the other week...lot of people start "value" investing when the market behaves as it has in the last 2 and a half years, just look at the rise of RM...one of the factors behind that is the fact that "value" is alot easier to find when fear and conservatism rule.

just look at the Japan crash of early March...lots of value appeared for a few days there...and now its mostly gone again...gota get in quick when opportunity presents.

 

[danbradster]

I was reading something about this the other week...lot of people start "value" investing when the market behaves as it has in the last 2 and a half years, just look at the rise of RM...one of the factors behind that is the fact that "value" is alot easier to find when fear and conservatism rule.

just look at the Japan crash of early March...lots of value appeared for a few days there...and now its mostly gone again...gota get in quick when opportunity presents.

Definitely agree about the Japan crisis, one of my shares was trading at a 25% discount in the Japan crisis then was back to normal a week later. That was a quick 33% gain for me, since I topped up a LOT on the unreasonable fall.

In the Japan crisis I sold my shares that had stayed stable and bought the shares that had fallen, this turned out to be a good strategy.

 

[oxygen]

I'm not sure hanging around waiting for a crash is a viable strategy but i'm with you on one thing, its a great opportunity if you a) know what your doing and b) have the kahunas.

It's starting to worry me that days where my watch lists are all in the red i see as a better opportunity than green days.

 

[Tyler Durden]

A recession comes every 10 years or so but crashes have a 40 to 50 year gap.

Interesting you say that, because my friend in the finance industry says there is a recession around the corner.

 

[SuperGlue]

Sounds like a good plan.

When should I invest?

Any idea on when to call the bottom of the crash or is it a falling dagger ??

 

[Julia]

However, stock market crashes only come around every so often. What happens to the value investor's investments when the stock market in general isn't in a crash/recession, etc.

Well, what is your own answer to this? If you are going to be waiting for that great crash to occur, what are your funds doing in the meantime?

If they are already placed in stocks, what's your plan about where to sell and then buy back in, either into your existing stocks or others?

 

[leonandnaye]

If I was just starting out in the market, I don't think I would wait for a crash,

As an investor you would be looking as to how a particular stock would fit in to your overall plan, ie growth or dividends. Hopefully you would always be looking for value.

As a long term investor I would not try to time the market but would look to have some cash on hand earning 5.5%, or a loan which is available to draw on, to take advantage of any opportunities,

I think if you hold diversified quality stocks they will rebound after a crash as we have seen with the GFC, ie banks, Bhp, Wes, etc.

The GFC was one of the best buying opportunities in my lifetime so far,

Just my opinion, I hope this helps,
Leon

Retired at 35, passive income is the key!

 

[youngone]

If I was just starting out in the market, I don't think I would wait for a crash,

Retired at 35, passive income is the key!

I concur.

Can you share us the key to having a passive income and retiring at 35?

 

[danbradster]

Retired at 35, passive income is the key!

Is a 50 year retirement sustainable with inflation? What is your wealth preservation strategy?

 

[So_Cynical]

If I was just starting out in the market, I don't think I would wait for a crash,

Retired at 35, passive income is the key!

I concur.

Can you share us the key to having a passive income and retiring at 35?

I would reckon that having a **** load of money at 34 would be a major precursor to being retired at 35.

 

[youngone]

Statistics: 61 Closed Trades since July 07, Winning Trades: 50, Losing Trades: 11, Expectancy/$1 Risked: $0.63

A bit off topic here, What does the expectancy/risked ratio mean?

I am guessing every $1 you traded, you received a $.63 return?

 

[ENP]

Well, what is your own answer to this? If you are going to be waiting for that great crash to occur, what are your funds doing in the meantime?

If they are already placed in stocks, what's your plan about where to sell and then buy back in, either into your existing stocks or others?

They are in bank accounts/term deposits.

 

[So_Cynical]

Statistics: 61 Closed Trades since July 07, Winning Trades: 50, Losing Trades: 11, Expectancy/$1 Risked: $0.63

A bit off topic here, What does the expectancy/risked ratio mean?

I am guessing every $1 you traded, you received a $.63 return?

yep...its called expectancy, techa put me onto it a while back, expectancy is a 100% measure of what you have made and a strong indicator for what you can expect to make, all things being equal going forward.

Has been discussed here previously.
https://www.aussiestockforums.com/forums/showthread.php?t=18462
https://www.aussiestockforums.com/forums/showthread.php?t=8954

An expectancy calculator.
http://www.stockresearchpro.com/an-expectancy-calculator-to-monitor-forex-trading-strategies

 

[leonandnaye]

I concur.

Can you share us the key to having a passive income and retiring at 35?

Hi Youngone,

The keys in my opinion are;

1) Start saving as young as you can to purchase income producing assets, I started at 17 so even though 35 years seems young, it was still an 18 year plan.
2) Only borrow money for assets that will appreciate in value and provide you an income, ( investment property, shares or a business. )
3) Pay off any debt as quick as you can, ( interest regardless of whether it is tax deductable or not is still costing you money.)
4) Live within your means, ( spend less than you earn. ) The more earned income you can turn into passive income the quicker your nest egg will grow. An income and expense spreadsheet can help with this, run your finances like a business.
5) Educate yourself about finance, continue your education and think about creative ways to make money. Focus on your after tax return and the correct asset holding structure.

Everyones journey is different so I haven't gone into specifics about mine. I believe if you follow these points you can achieve retirement in 15 to 20 years.
Unfortunately it is not a get rich quick scheme!! Sorry, but you will find your nest egg will increase exponentially, it is like a snowball, slow at first but then with increasing acceleration and size,
I hope this helps and if you would like any more info please let me know.

Leon
Retired at 35, Passive income is the key!

 

[leonandnaye]

Is a 50 year retirement sustainable with inflation? What is your wealth preservation strategy?

Hi danbradster,

Each year your returns, ( dividends or rental returns ), should keep place with inflation at the least.
This does not take into account any increase in capital, which is just a bonus as I dont want to sell my nest egg.
I also have some surplus passive income, so I tend to invest some of this to continue the process, of increasing my passive income for the following year.

Regards
Leon
Retired at 35, Passive income is the key!

 

[leonandnaye]

I would reckon that having a **** load of money at 34 would be a major precursor to being retired at 35.

Hi So_Cynical,

It depends on how much passive income your want and what sort of after tax return you can achieve.

If you have $500k invested @ 7% after tax, you have $35k a year in passive income.
If you have $1 mil invested or you can achieve 14% that is $70k you dont have to work for.
If I am correct you have said you are achieving a 63% return for every dollar invested, so you wouldn't need much capital at all.
Leon
Retired at 35, Passive income is the key!

 

[cudderbean]

The "value investor" concept I personally think just makes sense. After reading Ben Graham and Warren Buffet books it is the type of investing that is relatively simple to pick up and learn.

Saying that...

If the whole idea is to buy good companies for less than they are worth, then stock market crashes provide a great time to do this.

However, stock market crashes only come around every so often. What happens to the value investor's investments when the stock market in general isn't in a crash/recession, etc.

You don't necessarily have to wait for a massive crash.

Many charting programs have an envelope indicator around a moving average. Play about with the length of the MA and the % distance from the MA line. Every stock has a different profile.Try 50, 150, 200 MA. Choose what you regard as good solid div producing companies.
Now play about with the parameters until as you look back over the last 3-5 years you just skim the bottoms and tops. The % below is often quite different from the % above.

As a proviso, don't try to pick the exact bottom. Wait until the stock has recovered solidly above say its 150 MA and broken upwards through any down trend line. Also keep an eye on the XAO or whatever index you're interested in. Make sure it is recovering too. Don't try to fight the market.

You may snag a few bargains. But as Superglue said, you may end up trying to catch a falling dagger. Put sensible SLs in place. And do NOT use borrowed funds to do this. It may not have been the low you were expecting and you may have to sit it out if you didn't use SLs. Margin calls could wipe you out.

Test this system on the mother of all collapses 2007-9, before you do anything else. If that doesn't frighten you, have a go.

Good luck, mate.

 

[So_Cynical]

If I am correct you have said you are achieving a 63% return for every dollar invested, so you wouldn't need much capital at all.

That's closed trades with no dividends or distributions and over almost 4 years, so 15.75% annually...ill have to see if my portfolio software can throw up a % return for my dividends and distributions.

I'm aiming to live of my dividend and distribution stream in retirement, well looking for about 80% of my income to come from there anyway.