Staying on the Sidelines Because of a Fear of the ‘Next Crash’

Paul Atherton |
Essential Insights


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Should you be scared about investing? If you are, here’s how to work through it.

Avoiding the stock market because of this fear is nearly always a terrible idea.

The ‘it’s gonna happen again’ crowd has been a pretty consistent background noise during my entire career.

The 1987 stock market crash? Gonna happen again. The Asian financial crisis? Gonna happen again. And of course, the big daddy, the GFC. That was going to happen again for about 10 years.

Until we were hit by a virus.

Guess what?

They’ve all been wrong.

The stock market is up about 18-fold over the past thirty years. Some stocks, such as Amazon, have increased about 120,000% since inception.

Suppose you had invested $10k on Amazon’s IPO in 1997. That would be worth $12 million today.

Stock markets go up—great stocks go up even more.

So why all the bad news?

Here’s the thing.

When things are scary, people concentrate only on the scary stuff.

When things are going well, people concentrate on the positives. It’s human nature. Unfortunately, this tends to be self-reinforcing.

When it comes to the economy, who are you listening to?

When things are scary, the media hunts down “experts”, usually economists who are firmly in ‘the sky is falling’ camp.

But the world is more complex than the simple narratives that the media feeds us.

Reality is much more complicated; it is more nuanced, and despite the negativity, more positive.

That’s why over the long run, even the medium run, the positives win out—every time.

It pays to be optimistic.

The thing about the talking heads on TV or the short snippets you see on your social media thread is that they are paid for views and clicks.

Economists in the media are paid to be dramatic and cataclysmic.

‘Things are going to be alright’ doesn’t sell.

And in this social media dominated world, guess which stories go viral? You got it–the negative ones.

Be careful of televised economic “experts”.

When I worked on Wall Street and came home to visit the family in Australia for Christmas, I was astounded that people listened to economists on TV.

On Wall Street, economists were tolerated but rarely (if ever) listened to.

The thing with “experts” is that they have only one downside.

They just want your attention. Media economists’ downside is when you are not paying attention to them.

But the downside for being wrong? None.

What price did the economists pay for scaring people to stay on the sidelines while the longest bull market in history raged on post-GFC? None.

They don’t even have to apologise for their mistakes.

But in the world of finance, mistakes and errors are punished with losing money. Sometimes a lot of money.

That’s a punishment that will keep you focused.

“”The fundamentals, not the price, should drive you.””

Instead, when things are scary, do more research.

Warren Buffet famously says that the key to his success is being greedy when people are fearful and fearful when people are greedy.

That’s difficult to do because emotions do drive decisions.

For me, I find the best way to manage emotions is that when things are scary, do more research. When things seem very positive, do more research.

Basically, always do more research.

Dive that much deeper into the companies that you own or the companies you might want to own.

Look at their balance sheet. Ask questions to value the stock.

Have things changed significantly in their business for better or worse? How is their management? How leveraged are they? Do they have too much debt?

If the answers to these questions paint the company in a bad light, then sell. If not, hold.

It really is that simple.

The fundamentals, not the price, should drive you.

Remember, risk is about the balance between negatives and positives.

When you are thinking of buying or selling a stock, you are looking for much more positives than negatives. For more information on this, check out my article on making good investment decisions here.

What if you like the company, but the stock keeps falling?

I have a saying—in the short-term, the stock market is always wrong; in the long-term, it is always right.

What that means is that the stock market overreacts.

Something has happened that has made enough people revaluate their stock holding, the economy, or the market in general, resulting in changes to the stock market.

The fear of another crash may cause you to sit on the sidelines, waiting for events to unfold.

However, unfolding can happen quickly, and it is during the riskiest periods for the stock market that the best investment opportunities become available.

But we might be going into a depression…and, and, and…

Yes, I get it.

The list of negative news is extensive. I admit it’s scary. I do not deny it.

Let’s list a few of the current elements affecting the stock market.

The scary negatives:

  • An unprecedented increase in unemployment.
  • COVID-19 still not under control and is likely to be with us for some time in the future.
  • GDP is going into recession across the globe simultaneously.
  • Stock markets appear to be overvalued.
  • There is massive government debt and the requirement for more.

Yep, scary stuff. But let’s list a few positives:

  • Businesses were able to realign to ‘working from home’ impressively fast.
  • Productivity massively increased due to flexible working hours.
  • Technology innovation in the development of a vaccine for COVID-19 has been extraordinary.
  • Cloud computing and online connectivity have worked, and that part of the economy is doing very well.
  • Energy is now cheap; this is good for everyone.
  • Governments have realised that fiscal spending is possible and not a bad thing.

What do you think of those?

To me, the positives outweigh the negatives.

But what if a few more things moved the needle positive?

A COVID-19 vaccine perhaps? A rebound in the economy? An innovation in home working?

These are all still possible.

So, what are the takeaways:

  • Staying out of the market is not in your long-term interest.
  • Study your investments, understand the details of the company you have invested in.
  • Study the company, not the price.
  • Don’t give in to fear.
  • Ignore the talking heads on TV.

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Who is Paul Atherton, That Wall Street Guy?

An ex-Wall Street advisor who worked with major players in the global financial industry for over 30 years, Paul’s mission is to help regular people reclaim their wealth and financial security.

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