I began researching sharemarket investing in 2001, at about the same time as the dotcom bubble burst. I started ‘playing’ with sharemarket investing in 2003 and eventually found an investing model that made sense to me in Warren Buffett’s style of value investing in 2004. This is when I began to make my first ‘informed’ investments.
In 2005 I took off travelling around the world for 19 months and actually watched my personal wealth increase (my portfolio rose by more than the savings I spent). When I returned home in March 2007 and began watching the markets more carefully again I could not find a single opportunity, I’m sure there was at least one, but I couldn’t find it – everything was simply too expensive. So I sat and waited.
Then in 2008 the Global Financial Crises rocked the financial world. In 2008 and during 2009 to 2010 I could not buy enough.
What does this story have to do with why I haven’t bought any new investments recently?
In short. I can’t find much that is cheap and this is beginning to remind my of 2007 when I returned home from travelling and could not find anything cheap to buy, just before the crash of the GFC. The market as a whole doesn’t seem quite as expensive as 2007, but some pockets of it do.
Do I think a crash is coming?
Yes, but I have no idea when, no idea where it will come from and no idea how bad it will be. I just know that human nature being what it is there will always be booms and busts. It could be years away yet, but another big bust will happen again. I’m betting on it.
Why do I think a crash is coming?
Because they always do. The boom has been running for quite sometime now, interest rates are at record lows with only one way to go, there is a lot of debt out there and now much of it is held by nations, as well as companies and consumers. I’m no economist, but there appears to be a lot of slippery slopes out there.
Here is a chart for the major american markets, the Dow Jones, the S&P500 and the NASDAQ from 1995 to now in 2017.
What am I currently doing about it?
Nothing at all that is that different from what I do every day really. I’m still constantly looking for great companies at fair prices, cyclical companies at cheap prices and any other company available at prices less than their assets are worth. I just can’t find many.
But, essentially what I am doing is this:
- Saving Cash – Cash is king in a bear market. You can’t buy the bargins if you don’t have the cash.
- Avoiding Debt – I’m not taking out any amount of personal debt. Warren Buffett has a saying, ‘You don’t find out who is swimming naked until the tide goes out.’
- Margin loan on stand-by – I always have a margin loan on stand-by (this is a loan for buying shares). But I haven’t used it since 2010. I only use it to buy investments when they are really cheap and I keep a very low and manageable loan to value ratio. Caution: Margin Loans can and do get many people into a lot of financial grief.
- Low Personal Expenses – As a general rule I live in a way that keeps my personal expenses quite low, but more importantly flexible to be even lower. I have very few financial commitments that I can not drop if I need to.
- Multiple secure income streams – I try to have more than one source of income and when markets are getting ‘frothy’ I aim to be in a position where I have a solid income stream that should withstand market downturns and provide a stream of capital to invest. For example – My current main employment is as a Robotics (a growing industry) Service (a department that is necessary in good or bad times) Manager, plus I have a number of other sources of income to help with any fluctuations and to increase the capital I have available to invest.
I don’t know what is coming or when it may come. But from past experiences I do know that ensuring you only buy when investments are cheap and then prepare yourself for these buying opportunities when investments are expensive helps you to compound your capital quite nicely overtime.
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Enjoy the ride!