Longing For The Market Downturn
I can honestly say that I long for a general downturn. It may seem strange to some, but for us who want to buy quality companies at a discount, and in the process increase our dividend stream significantly, the scenario is tempting.
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I have started to contemplate whether or not I should seize with the monthly purchases and await the coming stock market downturn. Because a significant drop in stock prices will come sooner or later, the big question is when. Maybe I'll have to wait a month or so, maybe until next year or even longer.
The question is if I'm prepared to stay outside the market for as long as it takes? And how would I act if the stock market started plummeting today? How many positions would have time and the courage to take before the stock market climbed back to previous levels?
How Did Things Turnout In 2007?
If we look at history, the major stock market crashes have become steeper and steeper and the recovery time has become shorter and shorter. In connection with the last major downturn, the Swedish index OMXS30 hit bottom, October 27 2008, after about 4 months and the market stayed at that level for about 6 months. The time one had to buy bargains was in other words more limited than one might think. OMXS30 had after about 20 months recovered to the same levels as before the crash.
I'd like to think that I would have bought large amount of shares in great companies during the 6 months we stayed close to the bottom.The likelihood however is that this wouldn't be the case if the stock market crashed today. I probably would burn too much ammunition early on and not have much left once we reach the bottom.
In Summary
What then can we conclude from the reasoning above? Well, atleast the following - We don't know when the next stock market downturn will begin, nor when we will have reached the bottom, or for that matter how long we will stay there. What I know for certain is that I'll lose money if I stand outside the market for extended periods of time. If I continue to buy regularly and disciplined as the market falls chances are I will still have some firepower left when the stock market has plunged more than 30%.
What's My Plan Going Forward?
I will continue to purchase stocks with regularity. When the market starts to fall, I will increase the frequency, but not to the point that I burn all my capital at once.
When the stock market has once again recovered I will revert to, something in the line, of one purchase per month. I know that the thought of a market crash seems unlikely to many at this point in time, but that's exactly why we should mentality prepare for one.
The question is if I'm prepared to stay outside the market for as long as it takes? And how would I act if the stock market started plummeting today? How many positions would have time and the courage to take before the stock market climbed back to previous levels?
How Did Things Turnout In 2007?
If we look at history, the major stock market crashes have become steeper and steeper and the recovery time has become shorter and shorter. In connection with the last major downturn, the Swedish index OMXS30 hit bottom, October 27 2008, after about 4 months and the market stayed at that level for about 6 months. The time one had to buy bargains was in other words more limited than one might think. OMXS30 had after about 20 months recovered to the same levels as before the crash.
I'd like to think that I would have bought large amount of shares in great companies during the 6 months we stayed close to the bottom.The likelihood however is that this wouldn't be the case if the stock market crashed today. I probably would burn too much ammunition early on and not have much left once we reach the bottom.
In Summary
What then can we conclude from the reasoning above? Well, atleast the following - We don't know when the next stock market downturn will begin, nor when we will have reached the bottom, or for that matter how long we will stay there. What I know for certain is that I'll lose money if I stand outside the market for extended periods of time. If I continue to buy regularly and disciplined as the market falls chances are I will still have some firepower left when the stock market has plunged more than 30%.
What's My Plan Going Forward?
I will continue to purchase stocks with regularity. When the market starts to fall, I will increase the frequency, but not to the point that I burn all my capital at once.
When the stock market has once again recovered I will revert to, something in the line, of one purchase per month. I know that the thought of a market crash seems unlikely to many at this point in time, but that's exactly why we should mentality prepare for one.
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