My Thoughts On The Current Sharemarket Crash

I wasn’t planning to write about the current market fall.

Especially since I already published a hefty article on the topic when the market was falling back in 2018. 

If you missed that one, here it is: “Long Term Investing & Shrugging Off Sharemarket Falls”

But it seems the coronavirus is going to be with us for some time.  Therefore, it will continue to affect what happens in markets and the economy.

While a lot is still unclear, here are my thoughts on the current situation and how to approach it as a long term investor.

 

Surprise… Market Crash!

Well… it’s been an interesting few weeks for sharemarket investors to say the least!

After a calm and serene few years of gains, we’re now experiencing some huge volatility.  Think of a peaceful lake turning into a rough and stormy sea.

Depending on your age, you’ve seen something similar before (GFC), or it feels completely crazy.  Almost everyone in the FI community hasn’t invested through a period like this, myself included.

Despite a few wobbles in 2011 and 2018, the markets have been on a reasonably steady upward march since 2009 or so.  But things are getting real now.

As I type this on Thursday March 19, both the US and Aussie sharemarkets are down about 33%, since the 20th of Feb.  Not only that, but daily moves are no longer in the 1-2% range.  More like 5-10%!

If you’re a complete newbie to the sharemarket and are wondering why on earth someone would choose shares over property, or just don’t understand how the sharemarket works, this post is for you.

From what I’ve read, this is the fastest bear market on record.  So it’s a little unusual.  But a global pandemic will do that! 

This might sound strange, but if I had to choose, I prefer this rapid decline in prices compared to a slow grind lower over a couple of years.  

That’s not to say it’s over.  Who could say that?!  But a fast adjustment is probably easier to stomach than a sliding market which lasts years – death by a thousands cuts style. 

If any readers have invested through bear markets before, I’d love to hear your opinion on this.

 

So what’s happening?

First, we need to do our best to keep calm.  Breathe.  Really!

It might feel like it now, but the world is not going to end.  Is coronavirus a terrible health crisis causing death and pain around the globe?  Yes, absolutely. 

Are markets and economies and livelihoods being disrupted and damaged by this?  Yes, no question.

But it’s important to remember, this is a short term issue.  As everyone works together, this virus will eventually be under control and then recede at some point. 

It may be with us for a while yet, but we will pass through the other side.  

In terms of the economy, things are starting to look bleak.  As we shut down more gatherings, events, restaurants and potentially schools, the incomes of many people will be affected.

My hope is that most people have enough savings and adaptability to see them through.  But given my readership as a percentage of the population is relatively low, I’m not sure that’s the case πŸ˜‰

Ultimately, I don’t know what’s going to happen.  But things could get painful for lots of people and have nasty knock-on effects across the economy.  Hotels, tourism, cafes, shops, real estate, pretty much everything could take a hit.

I’m not one to be alarmist, but that wouldn’t be good and it’s simply not clear where we’ll end up (hence the market freaking out).

 

The FI Community

On a more positive note, my readers and those in the FI community are perhaps the best positioned people in the whole population to deal with this.

Thanks to strong savings habits, investment portfolios and often an unusual ability to see personal finance and thriving in any situation as more of a game than an inconvenience.  

So it’s time to be thankful for the relatively fortunate position we’ve built for ourselves. 

And who knows, after all this is over, maybe this will be the wake-up call for those who ignore their finances when times are good?  Maybe they’ll see the light, build some savings and start paving their own path to freedom. 

Obviously, none of this is ideal.  Some of you will be affected by the hit to the economy.  But for those with a bit of wealth and savings behind them, it’s unlikely to spell disaster.

 

Will we have a recession?

The answer is, most likely.  Some respected economists like Bill Evans from Westpac have stated the economy is likely to have two consecutive quarters of negative growth this year, in the first and second quarter.  

That’s why you’ve likely heard the Reserve Bank (RBA) has cut interest rates again and, along with the Government, have announced a stimulus package.  Their aim is to help the economy muddle through this strange lockdown situation, while we get the virus under control.

It’s expected that as the virus passes, the economy will pick up once again, thanks to extremely low interest rates, a low Aussie dollar, and whatever other stimulus measures are deemed necessary.

Even though it’s forecast EVERY SINGLE YEAR, we haven’t had a recession for roughly 30 years.  So, in some ways, I think a short recession might allow us to shut up about it and move on.  But I’m not holding my breath on that one!

We currently hold the world record for the longest period of consecutive economic growth.  Even if we can’t keep it going, we should be pretty pleased about that! 

Besides, it’s not the end of the world to have a small dip before continuing the long term trend of economic growth.

For most people, the virus isn’t that scary.  The real concern is we don’t want the wrong people to get it.  Like those with existing health issues and the elderly.  

So locking things down for a while does seem to make sense.  This article is a very good read on the topic and how we can all play a helpful part.

Now let’s talk about how this affects our investments…

 

“What if some companies go broke?”

Given the outlook for travel, tourism and hospitality right now, it’s totally possible that many businesses won’t survive this.  And there will be snowball effects to almost every type of industry due to the shutdown. 

Some companies will be forced to lay off workers or close down completely.  Less cash circulating in the economy and lower confidence will lead to more of the same.

You might have noticed certain businesses are flourishing in these conditions.  Supermarkets!  And if the moronic behaviour in the store keeps up, security personnel will also do well.

But for most of us, the risk of having dying companies in our portfolio isn’t a big deal.  In most cases, you wouldn’t even notice, if you’ve invested in what I’d call permanent holdings.  Examples of this being index funds or widely diversified LICs.

From an investment standpoint, I take comfort topping up these holdings, knowing they aren’t going anywhere and a few bad companies inside these funds will make very little difference to the long term outcome.

Contrast this with buying individual stocks, where there are more unknowns, less diversification, and the decision-making rests with you! 

That can add stress to an already stressful market decline.  And for some people, that can prove too much.

 

“But company XYZ is really cheap”

For those who look at different companies:  with prices down so much, do some of them just look irresistible right now?

I used to play this game too.  I don’t anymore.  It seems to be natural for investors early on to start seeing opportunities everywhere and get a little overenthusiastic. 

But we’re not the only ones watching.  There are thousands of analysts studying the same companies that we’re casually glancing at.  Not always, but sometimes things are cheap for a reason. 

For me, buying individual companies was hit-and-miss.  And I ended up resenting the time spent following and thinking about them.  So I now hold only diversified funds (index and LICs), and much prefer it this way.

Maybe some stocks are cheap.  Maybe they have fallen too much.  That’s almost certain to be true.  But I’ll leave that for people smarter than me to figure out!

If some stocks are underpriced or great value, I’d hope the managers of my LICs are buying some right now.  So there’s really no need for me to go out and do the same.  In any case, I keep it simple and don’t think about that stuff anymore.

 

“But what about company earnings and dividends?”

What’s going to happen here?  Nobody really knows at this stage.  

Even some central banks (like the US) have now stopped economic forecasts, because the short-term is too uncertain right now.  Everything depends on how far the virus spreads.

It does seem likely that earnings and dividends will take a hit.  But overall, I’m not sure it will be as great as the 35% decline in share prices we’ve seen so far.

We won’t find out for at least a few months, so we’ll see.

 

“But what if the market keeps falling?”

Then… so be it.  I’m not sure about you, but I’m still buying shares.  Why wouldn’t I?

For those thinking you can buy at the bottom, or even know it’s the bottom, you’re dreaming!  Almost by definition, only one person can buy at the bottom.  

By the time the “dust has settled” on the virus and economic issues, the market will have already moved up.  So to paraphrase Peter Thornhill, “hold your nose and keep buying.”

Yes, it feels nicer to buy when the market is calm and rising.  But the most profitable times to invest are typically the scariest.  The problem is, we can only see this after the fact.

As it turns out, the most volatile periods are also a decent indicator of good future returns.  Check out this post.

Peter Lynch, a famous fund manager, is fond of saying, “In the stock market, the most important organ is not the brain.  It’s the stomach.”

And times like this is exactly why he says that.  You need to be able to hold on during tough periods to get attractive long term returns from the market.

Great investors like Warren Buffett and the like don’t know when the market will turn around, or how bad it will get.  They simply try to buy more as prices get lower.

We should do the same.  And as we do, we’ll slowly build up that cast iron stomach that’s needed to be a stoic and successful long term investor.

 

You think it’s going to get worse?

Great insight.  So does almost everybody with a pulse.  Unfortunately, that gives us zero insight into the best time to buy shares.

The market doesn’t line up with what’s happening in the economy.  That’s because markets are forward-looking.  So right now, prices are down because of the anticipation of lower profits in the next year or so.

By the time things are looking okay and the economy is starting to recover, the market has already moved up because it’s looking ahead to the improved profits in the future.

You might be able to see and feel when things are getting better.  But you can’t know when the mood will change in the market.

 

So what can we do?  Here are some tips…

—  Stop checking your portfolio.  Seriously!  It achieves nothing.  Right now, this will bring you only negative feelings.

Research shows we experience the pain of loss much more than the joy of gain.  So if the market is down 5% one day and up 5% the next day, that does NOT even out from an emotional perspective.  Not even close.

So keep your emotions in check by simply avoiding the temptation to add up the current market value of your portfolio.  All pain, no benefit.  Don’t do it to yourself.

 

— Stick to your plan.  Hopefully you have a plan to buy shares every month or so.  Continue on as planned.  Don’t let the market or other short-term minded people convince you otherwise.

The truth is nobody knows what’s going to happen in the next few months.  But we do know that business is not going to disappear and that as of right now, we’re getting 30% off the permanent value of these companies.

Invest a little more if you can afford to.  Yes, prices might fall more.  But in my view, now is a good time to try and find some extra spare cash to buy shares while they’re on sale.

 

—  Think like a business owner.  Because as an owner of shares, that’s exactly what you are.  

Does your local cafe care what other people think their cafe is worth?  If a customer came in every day and gave them an offer to buy the cafe that was lower and lower, they’d probably get pretty annoyed.

All the owner cares about is how much long term cashflow the cafe is going to produce.  If they have to shut down for a few weeks, or even a couple of months, does that really affect the cafe’s income over the next 50 years?

Sure, it’ll make much less in the short term.  But if they can see past the rough patch, their earnings will recover and the long term future will continue as before. 

So we should think about our investments in the same way.  Don’t focus on the next 12 months.  Think about the lifetime profits of the big basket of companies that makes up the Aussie and global markets.   

 

—  Minimise time in chat forums.  Given what’s happening in the market, chat forums are lighting up in a frenzy of activity. 

Now, don’t get me wrong.  Forums are a great place to connect with like-minded people.  But in times like this, they can be problematic – even damaging.  Here’s why…

There are too many forecasts.  Too many armchair experts.  Too much chatter and emotion-driven behaviour.  And too many short-term speculators. 

It seems like everyone is freaking out, because the calm, long term investors are mostly avoiding these places.  Why?  So they can think clearly, by themselves, without the noise and useless opinions.

So turn down the chatter and take a break.  Go for a walk.  Play with your kids.  Just do anything else for a while.  And continue on with your plan.

My plan?  To continue increasing my ownership in a wide group of businesses and enjoy the lifetime dividend streams they send my way.

 

—  Check your spending.  I know I mention this a lot.  But it’s important.  When times get tough, it becomes extremely obvious which spending is truly optional and which is essential.

And it turns out, aside from groceries and housing, most of it is optional.  So it’s a pretty good time to trim some fat in your spending.

You can use this cash to increase your portfolio, or add to your savings in case of job interruption.  Trimming your lifestyle might actually be quite easy as things could be shutting down for a little while.

This also reduces the risk of running into financial trouble if the slowdown affects you negatively.  

 

—  Stay safe and practice good hygiene (obviously).  Try to avoid large crowds and busy places.  Most people and workplaces are now taking this pretty seriously.

I’ve been joking with Mrs SMA that as an introvert I’m already a pro at self-isolation.  In fact, it’s my default setting most of the time, as I love to live a simple, quiet life.  So fortunately, I’m well equipped for these conditions!

 

—  Consider your personal situation.  Could your job be affected?  Do you have enough cash to cover forced leave or job loss for a few months? 

As I said, it seems likely there will be flow-on effects so if we enter ‘shutdown’ mode, most people will be affected.

For those in the early or middle stages of their FI journey:  I know it’s scary, but keep building your portfolio.

For those towards the end or already retired:  Make sure your backup plans are in place and use them if need be.

And for everyone:  Make sure your personal finances are in tip top condition.  Know where all your money goes and be prepared to adapt to whatever happens. 

Fortunately, those in the FI community are famous for taking 100% responsibility for their financial situation, so as a group we should come out the other side stronger than before.

 

Final thoughts

I know we all have limited funds.  But please use your savings in a rational way.  Use it to STOCK UP ON SHARES, NOT TOILET PAPER!

For those seeking Financial Independence, a market decline is a blessing in disguise.  It allows you to build your portfolio at much lower prices.

If you do lots of your buying while prices are low, when the market recovers you’ll be in a much richer position than you’d otherwise be.

For dividend-focused investors, the income streams we’re buying are now cheaper.  Dividends might fall in the short-term, but they too will recover and grow once more.  In the meantime, we’re getting more than 30% off the value of these lifetime streams of cashflow.

We all want a large retirement-sustaining portfolio which spits out enough cash to live on.  But you don’t get there by watching and waiting (and definitely not by freaking out and selling). 

You get there by investing as much as you can, regularly, over a long period of time.  That includes during times like this.  Especially, during times like this.

…If you’re wondering what you can do to bolster your personal finances during a crash, download my free guide below:  “How to Become Recession Proof – Your Financial Strength Checklist”

Click here to get your free copy.
 

55 comments

  1. Hey SM, Long time reader, first time poster. Firstly, really appreciate all the time, effort and selflessness you have put into the blog and how willing you are to share your knowledge. I am hooked on the FIRE concept, have read through Motivated Money three times now, and was all geared up to dump a good couple of hundred thousand into diversified LIC’s last Monday but everything went south from there. I agree with your above post and want to jump in head first now. My question is, what are your thoughts on adding in some CBA shares too, as their dividend is around the 7-8% mark now. Maybe putting 75% into 3 or 4 LIC’s and 25% into CBA shares. I remember Peter Thornhill dumping a fair amount into them during the GFC fall. I know most of the LIC’s have CBA in them anyway. Interested in your thoughts. Thanks again for all your effort, love the posts!

    1. If you buy the whole index right now (VAS) it’s paying a 7.8 percent grossed up dividend yield based upon last year’s dividend payment. BKI is paying 8.9 percent grossed up based upon payments last year. Why bother trying to pick individual stocks when there’s diversified bargains like that?

      1. Well said. Even factoring in dividend cuts of 20% or more, they’re still priced pretty attractively. Especially considering interesting rates/mortgage rates are now lower again in comparison.

    2. Thanks for the comment Andy πŸ™‚
      There is aboslutely zero need to buy CBA. It’s the second biggest company in the country and a major holding for every large LIC. It’s just doubling up for no good reason. Yes, the yield is a bit higher, but don’t go chasing yield. This post I wrote about High Yield Investments explains the dangers of that.

      Interestingly, Thornhill invests mostly in LICs nowadays and doesn’t bother with individual shares due to better diversification and less hassle.

  2. Having a diversified portfolio – although all the boats are sinking at the moment – i have property paid off and rental income as a fall back – things will have to be pretty bad before the rent has to sink too, however no debts and paid off property is a salve against what looks like a route on the super / pension fund. I give thanks i am the lucky one to have arrived at this stage before the whole thing went tits up. If push comes to shove the rent pays my expenses – while i wait for the super to refloat. go well folks it is not just money that counts.

    1. Sounds like you’re in a great spot Ben, nice work! And yes, health is much more important than money.

  3. Some great insights Dave. I am retired and at age 70 have seen it all since the ’87 crash. Everything you say pretty much hits the nail on the head. I am self funded and although I worked to age 63 I always had a plan from age 42 to supercharge my savings thru super and retire self funded, by cutting down on costs without living like a hermit. I am 40% invested in the market mainly through two LIC’s.. AFIC and CAM . They both pay very reliable divs and because of the way they manage incoming capital they can smooth div payments. Now they may reduce a bit as a result of this but I think it will be minimal. I also have holding in a actively managed global fund and an actively managed ASX focussed fund. Right now I am dollar cost averaging into the market at these ‘on sale’ prices. Ok I am underwater at the moment but so is everyone else. History tells us the market will continue its inexorable north west trajectory on the graph. In another year this will be just another blip on one of Peter Thornhills’ graphs. In addition I keep enough cash to cover all expenses for two years so I am never a forced seller to realise cash. Third, I also invest in alternatives like commercial real estate syndicates in ‘A’ class buildings across all states mostly in office, industrial and logistics with mainly ASX listed tenents on long leases and triple net as well. That income so far has meant I have never had to touch the ‘stand by’ money. Anyhow just an approach that some younger readers may want to think about as they consider their FIRE journey. In the meantime stop looking at portfolios, if you have some spare cash feed it in slowly until the rebound is underway and in the meantime choke on the dividends. LOL.

    1. Haha enjoyed this comment Bob, especially to “choke on the dividends” πŸ˜‰

      Thanks for sharing your experience and thoughts with us. Always great to hear from more seasoned investors!

    2. I think Bob’s comment “History tells us the market will continue its inexorable north west trajectory on the graph” has got the compass skewed. Presume he means “North East”. Currently of course it is going close to South

  4. Hi Dave ,
    good advice yet again . We ( wife and l ) retired 4 yrs ago at 60 , we have a SMSF with the dividends and franking credits providing our yearly total expenses without needing to sell any shares . We have 5 years cash in the fund . It was suggested to us a few months back that we had to much in cash and it should be in the market , my comment was yes after the next correction. Well here it is so time to add to ETFs and LICs

    1. Great to hear about your successful retirement Mal. And sounds like you’re all cashed up and going shopping… happy investing!

  5. Good advice there Dave. It’s definitely interesting times ahead for us. As much as the government tries to prop up the economy it’s quite certain that a recession will come, like it or not.

    I’m starting to see reports that banks are starting to come to the party with repayment holidays so there is some help out there for people who need it.

    1. Absolutely – I don’t see a way around this one. How do you prop up and economy that’s being shut down? πŸ™‚

      Yes I saw that too about mortgage holidays, which will be a huge help as there’s no real solution for the cash flow crunch in the short term.

  6. Panic selling usually leads to panic buying and a bad case of FOMO. I wouldnt be buying falling daggers and would only start buying when the market is on a consistent trend up after the dip. You cant pick the bottom but you can pick when the recovery is under way properly and not dead cat bounce days like we are seeing now. Those who bought early have just bought into heavy losses and while averaging in is a good strategy it makes more sense to wait and get your 1% in the bank than see your money doing nothing but joining the sea of red.
    Companies will be cutting or scrapping dividends so dont expect what you were getting and we just have to wait it out.

    1. Yep we’ll have to wait and see, but it definitely looks like earnings and dividends will take a hit. Be interesting to see what LICs do in terms of payouts.

      Agreed – being too emotional in either direction is a disaster waiting to happen. I’m not sure we have the same philosophy on when to buy though πŸ˜‰

    2. Just buy ETFs like VAS. If you average down and can reduce your cost base, what’s the point in trying to time the bottom and hope it’s on the increase again? And if you sit on your hands too long, you could very well miss a massive day on the market where it goes gang busters again. There is data about this where missing one key day can really cost you.

      1. Yeah, read something like that… miss the top 10 days in a year and you’ll go backwards. Got a mate who reckoned a dip was imminent so shifted his super from stocks to cash in May last year. So he missed about a 20% gain there. Then about a month ago he decided he was wrong, so bought back into shares paying a 20% premium to do so. He let me know he did it, then said something like: “Now watch it go down 20%”. We laughed.

        1. It’s always amazing to hear stories of ppl who go all-in or all-out based on a hunch or ‘instinct’, a bit sad really.

  7. Dollar cost averaging is your friend. Don’t dump a bunch of cash into the market at once. Put a bit in now, a bit next week, a bit the week after… You don’t know when the market will hit the bottom, so you spread the risk out across time. There’s at least some chance that way that you will catch at least part of the lowest prices.

    Granted, it will be preferable to have access to low brokerage fees – or alternatively, use an index fund like the ones on offer from Vanguard, where there is no brokerage.

    In the meantime, if you’re itching to put your cash to work, consider P2P lending. I’ve nailed some really good rates in the 1 month market with Ratesetter lately – well above the high interest savings account I have.

    1. I have to admit I was thinking off trying to time the bottom and dumping this post reminded me that has never been my long term plan DCA is back in my mind with a little extra in the monthly purchases going forward

    2. Although if the unemployment rate goes through the roof, expect a lot of people defaulting on their P2P loans. This coming recession will certainly test the P2P model.

    3. Thanks Matthew. Consistent regular investing is likely to be the best strategy for most of us.

      On your points about brokerage and P2P – regular readers will be aware that I’m a fan of low-cost broker Selfwealth, and also have written about and invested in P2P lending for a while now. I noticed the 1 month rate really spiked for some reason recently, as Steve mentioned – crazy!

  8. Great post although I cant help but think that if everyone tightened there respective belts we would be looking at a depression era type catastrophe.
    There’s a reason government’s and central banks dont tell people to tighten there belts when times are looking bad.
    We are in fact encouraged to do the opposite with diminishing returns via rates. Helicopter money is coming if we hoard/save it then it will have no positive effect.
    It’s kind of paradoxical in that ‘tightening the belt’ could be good advice on a personal level but devastating to the population at large.

    People need to understand that panicking about money as a community is the best way to loose your own job!

    1. Nice comment Patrick. My view is, people will be tightening their belts anyway due to the shutdown and short term cashflow crunch. I wouldn’t expect that to continue though.

      When things recover, the masses will be more than happy to spend freely once again. After every other crisis, it takes a while, but people eventually forget about the past and move into the ‘live for today’ mode. The desire for newer, fancier, more exotic things/lifestyle will never diminish for a large percentage of people.

  9. Thanks for the post SMA. Appreciate your thoughts on this. I’m sure plenty of us need reminders at times like this to step back and focus on the long run. I too am reminded of what Thornhill said about ’87 (if you went on holiday and came back, you wouldn’t even know it had happened). And of course the much quoted Buffet – be greedy when others are fearful – right now the fear and panic is rife!
    I look at all this as an opportunity, again remembering how Thornhill bought big on CBA at a time when some people thought they would actually collapse – before they went on to become the largest market cap in the country!
    A tricky aspect for me is being able to allocate funds to investing while being very mindful of the need to make sure I have an adequte ‘worst case scenario’ cash buffer.
    Appreciate everyone else’s posts and comments too. Be money wise, everyone!

    1. Cheers Martin. We’ve definitely moved into panic mode it seems!
      You raise a good point – it’s important to keep a buffer for ourselves but it can be tempting to invest that money too. Tricky to balance, but crucial not to let ‘greed’ for higher returns win that battle.

  10. Great post, really needed given the tripe that is being published elsewhere. I’m in the DCA camp; whilst I might miss the bottom, it’s certainly a lot better than what I was buying at a few months back. And of course I’m throwing a bit extra in now where possible. All the best to everyone, stay healthy

  11. Nick Maggiulli has some great content, I’ve been reading his column for a while now

    With 3 Investment Properties in Perth and the fact that the Perth property market was just starting to show some silver linings and then this occurs, it’s a conspiracy I tell ya

    I recently invested in a swag of MLT with some personal cash, after the markets decline I bailed , took a loss for future CGT liability and then purchased VAS at around $62 instead

    I’m expecting dividends/income to fall after the April reporting period also, not great if you’re relying on dividends

    As always enjoy reading your musings SMA

    I see Thornhill recently did an an updated interview with Aussie Firebug, not much change to his plan

    You should interview Satayking, Nodrog, Troung, Pippen, Dunno, Sfdodsy, Falcon etc.. as there are numerous others, there seems to be a wealth of knowledge and experience among those on PC

    1. Haha I know! We’re in the same boat mate… ONE DAY Perth will make a comeback πŸ˜‰

      I’m very interested to see what happens to dividends over the next 12 months and the subsequent 1-2 years, across the market, but especially with LICs. Could be the first dividend cuts since the GFC.

      Yes, there is definitely a ton of knowledge on there, but lately it has been overwhelmed with noise and short-termism.

  12. Hi Dave, thanks for sharing your views πŸ˜‰

    3 questions:

    1. When you were on your way to FIRE, how many months of living expenses did you have in savings?

    2. What holdings have you been topping up during the current market correction?

    3. What have been your top lessons in this market correction so far? Either financially or in any other area of your life

    Thanks

    Alex

    1. No worries Alex.

      1. Maybe 6 months or so living expenses. Mostly due to having multiple properties which could have costly repairs at any minute, or vacancies. Given we were able to live on less than 1 wage from a 2 wage household, I’d probably keep less if we had shares instead of property.

      2. I’ve been buying VAS as it has fallen the hardest.

      3. Lesson 1 – Truly anything can happen in life and in the markets at any time. Lesson 2 – to not waste time listening to people who think they know what’s going to happen next and the best time to buy. Buying consistently over time is easily the best approach for almost everyone. This one is more a reinforcement than a new lesson.

      Hope that’s interesting for you!

  13. Hello Dave,

    First, you have put your views succinctly and have a down-to-earth philosophical attitude it would seem.

    I’ll re-state my views which you will probably know from another place.

    I only put into the share market those funds I will never need again. Those funds are surplus to my necessary living expenses. Then I stay away until next time I have money to invest. Rinse and repeat. As to the value – however defined – of my personal holdings I haven’t a clue. Only time I bother with a price is when I go to buy and I already know what particular share(s) I want to purchase so the price of others I hold are not relevant at that time.

    Avoid debt to the same extent you would Covid-19. Time and time again it happens especially when leverage becomes “the thing” as a path to untold wealth. Yeah, right, although others hold a different view as is their right. I consider it owns you and has the ability to grind you into the dust. Wouldn’t surprise me some are now recognising that and feeling the adverse effects or soon will.

    As for social media and the like I read them as an educational thing and are interesting from that aspect. However, if it does freak people out and causes them stress they should stay well away. But they can be addictive especially to see how people react to favourable and now very unfavourable situations.

    Fear, Greed, Hope and Frustration. Also known as the share market.

    1. Thanks very much for your views SatayKing!

      The ‘staying away’ part is where most people get trapped I think. They keep looking, keep checking, keep asking everyone else what they’re doing. Just log on, buy your shares, and go do something else πŸ™‚

      As you allude to, the other trap is people trying to get it perfect – the right investment, at the right price, at the right time. Sounds sensible enough, but leads to too much uncertainty and second-guessing. When all that’s really needed is to keep topping up some simple diversified funds and let nature take its course.

      Appreciate you stopping by mate!

  14. What do you think about borrowing to invest in the current sharemarket?

    I am 38, still working, no debts and have twelve months expenses in savings. After recently dropping my short term cash savings into the market over-enthusiastically and a little too early (note to self: consider DCA next time). I am thinking of tapping my current unused lines of credit to bolster my portfolio. Given low rates and a multi year horizon it seems like this could be a good long term strategy. What do you and your readers think?

    1. Hey Doug. Look, it can work out fine, or it can be a disaster. It really depends on the person, their stomach for losses, ability to manage cashflow, risk of job loss etc., so it’s really hard to give a blanket answer.

      The longer time goes on, the more likely I am to say that most people are better off not borrowing to invest and should just keep it simple. Not because it doesn’t work over the long term, but because there’s more chance of it going wrong and can cause more stress than it’s worth.

      Sorry for the non-answer, but it’s really person-specific! Mathematically, it’s almost a no-brainer, but there’s a lot more to it than that!

    2. In case it helps, someone I respect highly in the area of personal finance said: “Too early to buy, too late to sell”. Only hindsight will tell us if this is right, but I’m comfortable enough to sit on the sidelines for a bit rather than double down into a storm.

  15. Hi Dave
    Such a great post and so informative, you really covered all the information I required in this uncertain time.
    I’m a long term investor who has lived and worked through two stock market crashes, so buying on the downward slide at present then waiting for recovery. Nobody can predict the bottom, it will recover and life will go on.

    1. Glad you found it useful Robert, thanks! And good to hear you’ve managed through other downturns before.

  16. The longer that you hang around equity markets, the less surprised you are to volatility spikes.
    In my investing lifetime, nothing comes close to Black Monday 1987. 5-10% daily declines are pretty impressive but pales into insignificance when compared to the 25% daily decline on 19 October 1987.

    1. Yes they can. Those funds are index funds which simply pass on whatever they receive during the quarter. So if companies pay less, the index fund will receive less and they will pay out less in dividends.

  17. Great post! I think too few people are just caught up with numbers on a screen or pieces of virtual paper without understanding what it is they are investing in. Thinking like a business owner completely turns this concept on its head. They say it’s only in the share market that people run away when everything is “on sale”. Never is more true than times like these! But if you really behaved like an owner, you would be a net buyer – look at the amount of buybacks and insider buying going on now which should give a clue!

  18. So, in summary, “Keep Calm and Carry On” has never been better advice.
    Don’t panic and stick to your plan.
    Thanks again Dave!

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