Episode 11

Financial crash proof your share investments

Welcome to Finance and Fury!

  1. Financial Crash proof your Share investments
  2. There is no way to control the rise and fall of investments but focusing on what you can control makes all the difference!
    • Behaviours lead to under performing, or outperforming, the ‘market’
  3. Firstly – What you buy and when
  4. Secondly – What you actually do when a “crash” occurs

What is a correction or crash?

  1. Drop on prices – followed by mass hysteria – panic selling – further declines in investment values
  2. Shares can drop quickly – They are liquid
    • Liquidity = How easy is it to sell shares and get your cash back
  3. The share market is a measure of crowd behaviour
    • Positive feedback loops

What triggers a crash?

  1. Prolonged periods of rising markets, excessive in the long term
    • P/E far exceed long term averages
    • Higher buying volumes
    • Year on year large gains
  2. Then something spooks investors to think the good times are over
    • If the markets think good times are done with, they will be
    • Self-fulfilling prophecy – positive feedback loops

What makes people sell shares at a loss?

  1. Myopic Loss Aversion – Fear of further losses – Losses (even on paper) are hard to bear, so people crystallise losses to avoid feeling further potential paper losses
    • Shares are some of the most feared investments out there
      • People feel like they can’t see or touch them, but if you buy some Woolworths – just remember half of you probably visit a store once a week.
      • They are hard to understand – Fear from the unknown
  2. History of share crashes and the drops – 1987, 2008 (worse than US)
    • What happened before this? Markets rose – 2002 to 2007 = 226% rise

What can you do? 

On the buy

  1. Diversification – Have one egg, it breaks, you have no eggs. If you have 1,000 eggs and one breaks, you’re ok!
    • Different segments – Not all banks, but across large, mid, and small cap, as well as different types of companies
    • Different countries/economies – we make up 2% of share market – 98% of companies are off shore
  2. Don’t overpay for investments
    • FOMO – Bubbles in shares are pretty clear
    • Market PE – Shares are valued mostly on expected future earnings (inherent values).
    • Where are we at now?
      1. Gains – 194% cumulative rise in the market since 2012 – but still not above 6,700 in 2007 pre GFC
      2. PE – In line with long term average

  1. Don’t buy rubbish – never invest out of hope into shares that might not be around tomorrow
    • Shares are ownership in a company – Is it a good company? Will it be around in 10 years?
    • Is it a fad, and not earning? They don’t survive crashes as well – avoid speculative shares

When the crash happens

  1. Don’t panic sell!
    • What happened the next year? After a crash there is rebound
      • Why? Demand picks up the following year
    • Buy more! If you are game!
      • Why would you buy something going down? Why is it going down?
      • You can buy investments on special – 2 for 1!

Let me get the crystal ball out…

  1. The next crash – Will come in form of borrowings within debt instruments / levels of government debt especially in the US. The market freaks out because they think the government can’t service their debts and default on their debts.
    • Sad truth – free market gets blamed for government interference
  2. Nobody knows what will happen.
    • Hold for long term

In summary

  1. Markets work in cycles – they go up, they go down
  2. The long game – hold and buy – Next Sunday we talk about FEAR and avoiding emotions

Thanks for listening – we need YOUR feedback! Leave a review, or ask your finance question at financeandfury.com.au/contact

How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation

Episode 2 How to be wealthy; Germs, Monopoly, and Competition Vs Cooperation. Hey guys, and welcome to Finance and Fury. Today the misunderstanding we're going to be tackling is how to be wealthy. There seems to be a lot of “rich-hating” going on around at the moment,...

Economic sanctions, tariffs and what they mean for both sides

Say What Wednesdays Economic sanctions, tariffs and what they mean for both sides Welcome to Say What Wednesdays - Where We Answer your finance questions Question from Rhys “I’ve been seeing stories on the news about Trump putting tariffs on China and sanctions on...

Say What Wednesdays: Swiping left and swiping right – living in a cashless society

Say What Wednesdays Swiping left and swiping right - living in a cashless society Welcome to Say What Wednesday! Today’s question comes from Katherine. “I heard a story on Hack the other day about Sweden becoming a cashless society – Can you explain this further? Is...

The skinny on spare change investment apps and building wealth when you’re earning $25,000 or less a year.

Say What Wednesday The skinny on spare change investment apps and building wealth when you’re earning $25,000 or less a year. Welcome to Say What Wednesdays – Where we answer your personal finance questions each week. Two questions this week from Chris: No 1 what are...

ETFs and the greater economy – their impact on financial crises and bubbles bursting

Episode 17 ETFs and the greater economy - their impact on financial crises and bubbles bursting Though banks bear much of the blame for previous financial crises, ordinary investors play a more central role than most people realise… …through greed, and fear....

Say What Wednesdays: The Trump Economy

Say What Wednesday The Trump Economy Today, we’re talking about the Trump economy, and the state of the US market. Love him or hate him, America is doing better than ever – Trump just can’t stop winning when it comes to a lot of political and economic factors. In his...

Say What Wednesday: First Home Super Saver Scheme

Say What Wednesdays First Home Super Saver Scheme: Using superannuation to buy your first home Today’s Say What Wednesday question comes from Emma, and relates to saving for a house deposit: “Hi, thanks so much for the podcasts - I have learnt so much. My question is...

How much is the economy of regional Australia worth?

Say What Wednesdays How much is the economy of regional Australia worth? Australia's regional workers and their contribution to the economy: Welcome to this week’s ‘Say What Wednesday’ episode! Our question today comes from Anna …who was actually listening to our...

Furious Friday: Could social security be the greatest Ponzi scheme ever?

Furious Friday Could social security be the greatest Ponzi scheme ever? Welcome to Finance and Fury, Furious Friday! I saw an ad this week for a movie called ’Wizard of Lies’ – Bernie Madoff movie – 2008. He was a stockbroker, investment adviser and financier who made...

Furious Fridays: Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty

Furious Friday Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty Welcome to Furious Fridays Imagine you are a child in Korea.... North Korea - After school (which is mostly propaganda to solidify your ruler), 10 years mandatory...

Pin It on Pinterest

Share This