Here it comes.
No, not the stock market crash. No, not a stock market correction, either.
OK. Well, maybe those things are coming. But, what most definitely IS coming are the analysts’ notes, financial stories, and money website articles about a possible 10% correction, or even 20% crash.
How To Get Credit For Predicting The Crash
You’ve seen the ads a hundred times on the internet. “He predicted the real estate crash, now he recommends this one company!”
So, how do you get credit for calling a stock market correction or stock market crash, anyway?
The sad reality is that it doesn’t take much. As long as you have some sort of statement, article, analysis, or investor note floating around out there mentioning a crash or correction when one actually happens, you (and your PR department) simply rush out to take credit. Whether the financial media decides to buy it depends a bit on how long ago your “prediction” happened, and how accurate it was.
But, as I’ve tried to point out time and again here on Finance Gourmet and other places I do financial writing for, these predictions aren’t always what they are cracked up to be. Often, the final prediction that made someone “right,” was just the last in a long line of similar predictions that were “wrong.”
Even more common are predictions so old that you can’t help but wonder what happened in the meantime. Did they not make ANY predictions since the real estate crash, or were the predictions they made just not that good so we’ll just hope you don’t notice that the real estate crash was 10+ years ago now. It’s like those college football programs that keep trotting out the National Championship Team from a decade ago to inspire remembering good times, and donations.
He predicted buying Amazon at $5! You should totally pay to sign up for information from him now!Some ad that hopes you aren’t smart enough to ask if he recommended any other stocks in the last 10 years.
Is There a Market Correction Coming?
So, is there a market correction coming?
Of course, there is! It would be foolish to think one isn’t coming. The market has basically gone up all year, and there hasn’t really been much of any downturn since at least March of 2020. Stocks aren’t hot air balloons. They don’t go straight up.
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As you can see from the exuberant, “Whee!” on my chart above, stocks have been doing spectacularly well since March 2020. Ironically, the March 2020 correction wasn’t really so much of a ‘market forces work to ensure price consolidation’ as a ‘coronovirus may actually destroy the economy’ downturn. The second the first wave ended, the stock market started stomping back up to reclaim its previous highs and basically kept going ever since.
When the market does not match what is actually happening in the economy, these prices start to seem too high. When they seem too high, it’s time to do two things in the financial industry. The first is to maybe deploy some of your defensive investments, whatever those may be. The second is to run to the press to ensure your name is out there as one of the smart ones calling for a downtown.
Count me, Brian Nelson, Financial Writer, Author of the personal finance blog, Finance Gourmet, as one of those financial journalists warning of a possible correction. When it happens, remember me as someone who predicted the market crash.
WHEN Is The Correction Coming?
Predicting a coming correction or coming crash is not the tricky part. The tricky part is getting the timing correct. If you were one of the poor stock market analysts during the internet bubble trying to sound the alarm about outrageous validations, companies going public with soaring stock valuations when they didn’t have any profits at all, and a market that no longer made sense, it made you less trusted, not more, when you were right… but two years too early. In the meantime, the Abbey Joseph Cohens of the world were out there shouting higher, higher, when it made no sense, and actually told their clients to, “buy the dip,” as the bubble popped, ended up being the rockstars of the stock analyst universe because at least they were wrong when everyone else was wrong.
You see, stock prices have been “crazy” for quite some time now. The recovery from the Covid-19 first wave was too far, too fast. The entire securities universe is currently buoyed by an incredibly accommodative monetary policy. Stock prices are not justified by most company’s earnings, and the companies that do have cash coming in better than ever are wasting it by pumping it back out the door in the form of stock buybacks rather than positioning their company for what comes next. Sure, those stock buybacks will help executives earn out those options, but they won’t position you ahead of your competitors for 2022 and beyond.
But, just like in 1999 when some market analysts were sounding alarms about stock prices, heading those warnings cost you so much money on the upside that it wasn’t worth avoiding the downside.
If you listened to analysts saying that the market is all fake held up by the Fed and no one is taking a world-wide pandemic seriously enough, you’ve lost out on 20% year-to-date returns this year, and 18% returns for 2020. Should you really be out of the market right now?
Maybe. But, if it takes another 18-months for the correction to finally happen was sitting out the right call?
This is why when I was a Certified Financial Professional (CFP) that I preached to my clients to build a well-diversified portfolio tailored to their risk-tolerance, time-frame, and goals and rebalance it once per year, but never EVER follow some article you read somewhere about getting out of the market because you’ll miss more getting out too early, and getting back in too late than you’ll ever lose in the inevitable market correction itself. Of course, I wasn’t trying to make a name for myself with the press.
For your shorter time frame stuff, I still believe in investing in companies with solid futures that pay solid dividends. A market downturn actually unveils more opportunities here. As Apple stock price falls, its dividend yield goes up. Same thing is true with all of the other companies out there.
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What if you own Apple already? Who cares? Weren’t you happy with the dividend when you bought it? If so, it still pays you the same dividend even as the price falls. If you like the higher dividend, adding some shares will bring up your overall dividend yield as well.
Most importantly, watch all these doom articles, and see who tries to claim credit, even when they are months (years?) too early.
You don’t get credit for predicting it will probably snow when it’s wintertime. It’s wintertime for the markets, but I can’t tell you when Steamboat will be rocking fresh powder. Neither can those guys you see on TV or read on those money websites. The only difference is that I’m not pretending I can in order to boost my career.
About the Author
By Brian Nelson: Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. Nothing in this, or any other article on FinanceGourmet.com is meant as a recommendation to buy or sell securities. At the time of publication, Mr. Nelson owned shares of Apple stock, however, that may change at any time without notice.
ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.