Saturday, November 30, 2013

When is the market going to crash down?

This has been the Billion dollar question for everyone since we had Dow hitting record high 16,000, S&P hitting record high 1,800 and Nasdaq hitting record high 4,000.

It has been common that when major indexes hit their respective record high, retail investors become more wary of their reversal turnaround and expecting a crashdown in the stock market.

My colleague at work says that Mar 2014 is the turnaround day the market will come crashing down. Another colleague says the Fed will extend its buying program and keeps interest low until 2015. Research Analyst at UOB mentioned investors to be wary of Fed tapering in Jan 2014. Marc Faber, Dr. Bearish, has been warning investors that stock market could gone crashing down next year worse than the state of economy in 2008.

What about some market statistics?

We have the Shiller PE ratio, which measures PE based on a 10 year adjusted inflation, currently at a high of 25.42. Historically, it has a mean of 16.50. Based on past statistics, the higher the Shiller PE ratio, the lower the returns investors are going to get in the future.



Mean:16.50
Median:15.90
Min:4.78 
Max:44.20
We also have another indicator in the CBOE VIX, where it is a key measure of market expectations of near term volatility. Currently, VIX is hovering around 13 to 15, which currently is at the 52 weeks low. As this is only an indication, it might stay low for a good number of years. But nevertheless, it is still a good indication that your returns would be lower in the future with a lower VIX than a higher VIX.



As we enter towards the final month of the year, there will probably be volatility in the market due to markets hitting recent record high which makes investors cashing in on profits. Fund managers have also been seen taking off profits off their portfolio by rebalancing their respective weightage during the window dressing period. Until then, not you and I can predict where's the market heading in 2014, but we can do so more prudently by playing our trump cards cautiously, even if it means obtaining lesser returns in the next couple of months.



8 comments:

  1. Think it is is unlikely to have a crash anytime soon when investors are generally wary of it..
    For market to crash, there has to be huge sell down.. and how to have voluminous sell down when not majority of investors are in the market? We are all at the sideline waiting eagerly to buy when it falls.. hard to crash.

    Market is weird. It will crash when the expectation of it crashing vanish, and everyone pops champagne to celebrate record high and eagerly waiting for their portfolio to rise with the tide..

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    1. Hi CSCCC

      You are generally right.

      The market will crash when the least is expected. Strangely, market has been hitting record high, so there must be some sort of buying and optimism there, Otherwise, we will have a stagnant up and down like the STI ;)

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  2. Gee thanks!

    I was fine until reading your post :(

    Now I think I have to hide under my blanket now... Or maybe that's because of the nice cool rainy nights?

    Psst. Can you don't block the exit?

    LOL!

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    1. Hi SMOL

      Hahaha... didn't you just recently posted a topic regarding patience :P?

      Have you suddenly gone bullish?? Hehehe

      The weather has really been cold recently. I better hide in my blanket until someone told me sun shine out there in our tiny Singapore island :D

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  3. Stop listening to noises. They too do not know when the market is going to crash. Even head of CB like Alan , and Ben also don't know, how on earth these guy claim they do., especially those fengshiu fellow prediction. They all do not know when they are going to die, how can they tell us what the future hold?
    What u can do is to have a stop loss for all vestment, be it long, short or value or whatever.

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    1. Hi Anonymous

      Thanks for yhe advice.

      You are right. Eveyone is speculating about the timing of market crash, just like you and me and we are bound to have someone spot on to get it right.

      Instead of timing the market, I am trying to be in the market for a longer period of time because I know the odds are in my favor over the longer term ;)

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  4. Hi B,

    Even though the US market is hitting new highs, the local market seems much more muted?

    The local STI has been flat for almost 3 years and with not much exuberance, I personally believe that a crash (STI <2500) is unlikely to happen soon.

    That also helps to explain why I am >70% invested currently. =)

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    1. Hi HWW

      I think STI will struggle at 3200 and will drop eventually to below 3000. There are very few stocks that can push STI higher and judging from the latest results announcements, it looks like long term investors like us are in it for a treat soon.

      It will be soon before you know you are going to use your bullet ;)

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