Australian (ASX) Stock Market Forum

Reserving cash for a correction / crash?

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Eddie_E

Eddie_E

Joined
24 May 2019
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Hey, just wondering how many of you leave cash aside waiting for a market correction or crash? Don't get me wrong I have a lot invested in stocks for the future, so would be prepared to ride the storm if one occurs but I'm also seeing companies riding on insane P/Es (pro medicus and nanosonics) are 2 that first spring to mind, so I'm thinking of reserving some of my savings and patiently waiting to see if any of the big companies take any big dips anytime soon. Thoughts?
 
You should have a system and stick to it.
If you are value investing and find a stock which is good value then you should be willing to buy if able at any time. (If you purely have value based system)
Your system may mean you end up buying more stocks at a crash when there are more undervalued stocks but I don't see this as a reason for save money in case of a dip.

Also remember if the market "corrects" you can't tell when the correction or crash will end. You could buy when market trends down and it could go much further down. There is no telling how long it will take to get back to profit.

I feel that one thing you are not considering is: when you will sell your stocks?
 
I'm happy to keep the stocks I have for the future so I wouldn't sell anything. If anything if they were to lose 10-20% or even more I would feel it's a good opportunity to buy some more. Very correct in saying you can't pick how far in goes down and it works differently for certain stocks of course. I just feel with all the uncertainty in the US and the high costs of most the top stocks, holding on to cash and seeing how the next 6 months plays seems a better option for the moment.
 
Eddie_E said:
I'm happy to keep the stocks I have for the future so I wouldn't sell anything. If anything if they were to lose 10-20% or even more I would feel it's a good opportunity to buy some more. Very correct in saying you can't pick how far in goes down and it works differently for certain stocks of course. I just feel with all the uncertainty in the US and the high costs of most the top stocks, holding on to cash and seeing how the next 6 months plays seems a better option for the moment.
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It sounds as though you are playing a long game, which IMO isn't a bad ploy, as long as it suits your personality.
When you retire and there is no pay cheque going into your account, you need to have a system in place that you feel comfortable with.
There is no point in trying to develop an income strategy, be it trading or sit and hold, when you are fully dependent on it.
You may well want to travel the World, so whatever system you decide on has to be robust, as you may well have to ignore it for periods of time. Therefore developing it now and addressing the issues now, will make life a lot easier later.
If you are a person who isn't interested in travel, developing a trading system as some on here have, is a great and rewarding hobby that also makes a lot of money.
I worked towards having enough in the market for income, and enough out of the market to maintain my lifestyle, if everything goes pear shaped for an extended time.
Everyone's different, one size doesn't fit all.
 
Eddie_E said:
I just feel with all the uncertainty in the US and the high costs of most the top stocks, holding on to cash and seeing how the next 6 months plays seems a better option for the moment.
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It's been said that more money has been lost waiting for a market correction, than has ever been lost in an actual correction. I'm not sure how you'd prove that statement, but opportunity loss, where you sit on the sidelines as the market continues to make money for other people, is a real thing.

Based on the comments you've made, I gather you're a value investor, and if so, you probably have a shrine to Warren Buffett and worship it daily. Warren definitely keeps a lot of "power dry" for opportunities, so if you did that, you'd be in line with his practice.

However, I think if you're waiting for the "right" investment to come along, you're better off putting that cash in an stock market index fund earning 10%, than keeping in cash earning 2.5%.
 
Eddie_E said:
I'm happy to keep the stocks I have for the future so I wouldn't sell anything. If anything if they were to lose 10-20% or even more I would feel it's a good opportunity to buy some more. Very correct in saying you can't pick how far in goes down and it works differently for certain stocks of course. I just feel with all the uncertainty in the US and the high costs of most the top stocks, holding on to cash and seeing how the next 6 months plays seems a better option for the moment.
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The risk is you hold on for too long and miss the boat.. think about it..you should actually go with the flow, follow the lemmings in a more condescending way
There is no point being right, you are always too early to get in or leave
That has been my experience for too long and i missed lots of gains
So i worked on a system, bough some insurance bboz, gold, bonds and Bob is your uncle
Do not keep much cash or do it as usd, other foreign currencies
Not a recipe for wealth but a good one to retire in your 50s ..which is what i am doing now
 
Thanks for all your responses. Don't get me wrong, I decided to put on hold my mortgage plans for the markets and began personal investing since January. This was after learning lots and investing through my super for last few years, which I converted to a balanced index so I didn't have to think about that too much.

I have 3/4s of all my savings now live in the markets and are seeing great returns, especially giving how bullish the market has been on tech. But I lost a lot in my super last Oct through to Dec hence why I decided to go 'safe' and not think about it.

I guess the point I'm playing in my head is do I put the past 1/4 back into the market today, knowing stocks are becoming heavily overvalued. I guess something like VAS could be an option with the thought to sell if there is ever a 5-7% drop over a short period.
 
off topic
just make the point that a 5-7% drop could be less than 3 trading days for funds such as vas or ioz or whatevs. those big parcels sitting in both queues each day (at big spread) are the fund managers (and why they move together intra day with xjo movement etc) ...... sometimes they are the only parcels available to trade ....... makes it tricky (and worse cos brokers kill orders daily for index funds)

anyhow, sounds like u r doing ok with ur thoughts.
 
Hi Eddie_E , are you saying your thinking of putting 25% of your capital in one stock?
do you know why you lost a lot of your super last Oct to Dec?
 
I was too heavily invested in the banks is one reason RE super last year as well a few US etfs that also went down from highs.

No i definitely wouldn't put 25% in 1 stock :) I actually need more diversity now and think depending how the G20 summit pans out I would be happy to put a fair chunk on the NDQ etf.
 
These type of threads often look funny in hindsight, years down the track. No one knows what will happen over time. No one here can, nor is authorised to, give actual financial advice. By your posts, it sounds to me like you know what you're talking about.

Are you holding off taking up a mortgage to buy first property? Home ownership tends to give psychological benefits beyond the amount it might appreciate in value. As the recent apartment block structural integrity dramas in Sydney show, though, even this is only a generalisation. Are you hoping housing correction will worsen for better buying opportunities? Or are you considering being a long term (or even lifelong) renter - or maybe you're still at family home wanting to amass a bigger deposit?
 
Haha yeh I wasn't really asking stock market crash predictions, as we all know where that discussion ends up! Just to see if anyone else reserves cash for market downturns and uses that as a tactic in buying great companies at lower prices!

Mortgage will be a first home, I'm already doing the FHSS to save on tax and having more money ready if I do decide to buy, while taking advantage of the extra money in my super for my investments. But yes I could go both ways. I'm originally from London, although a Aussie citizen (been here 12yrs), wife is from NZ and although we see our future in Sydney, renting and investing for now just suits us for next 5 yrs at least.
 
For what its worth I think the risks of a major war in the ME at the moment should give one cause to pause. And we also have a major unfolding trade war between the US and China.

The risks to oil supplies and of widespread disruptions are on table.:2twocents
https://www.abc.net.au/news/2019-06...iran-movements-push-back-john-bolton/11237404

Will Iran Torpedo The Stock Market? Threats Multiply For The "Longest Bull Market Ever" Jeff Camarda Contributor

https://www.forbes.com/sites/jeffca...or-the-longest-bull-market-ever/#6a9e701b607f
 
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