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

Gender pay gap, porn, and becoming “in demand”

Episode 1 Gender pay gap, porn and becoming "in demand" Welcome to the first episode of Finance and Fury and today we're going to be setting the scene for the rest of the podcast. The whole podcast is about helping to solve misunderstandings… and one really big one is...

The Weapons of psychology politicians use to win your vote

Welcome to Finance and Fury The election has been set for the 18th of May The marketing has been coming in and it has been pretty forward with the smear campaigns It seems like a lot of it preys off people not understanding how the economy works, and there is nothing...

Furious Friday: Are we destroying our own economy?

Welcome Finance and Fury the Furious Friday edition, and welcome to part 2 of talking about the risks and the future of our economy In the last episode, we covered the future of our economy In this episode, we will explore economic subversion and internal reliance...

Goals for the New Year

Welcome to Finance and Fury Welcome to the new year, depending on when you listen it may be new year’s eve or the new year  Hope you are in for a good night, or not recovering from one. Starting off with a question; looking back on the year, are you in a better...

Financial crash proof your share investments

Episode 11 Financial crash proof your share investments Welcome to Finance and Fury! Financial Crash proof your Share investments 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...

Younger than 35 are experiencing low to negative income growth – but there are real ways of actually getting around it

Episode 27 Younger than 35 are experiencing low to negative income growth - but there are real ways of actually getting around it Today we’re talking about a news article that came out highlighting that young Australians’ are experiencing either zero, or negative...

Say What Wednesdays: Insurance – how it works, what to look for, and how much you need

Welcome to Finance and Fury’s ‘Say What Wednesday’ edition, where every week we answer questions from you guys. This week the question comes from Effy; “I am a Chinese migrant living in Melbourne. I do not recall if your podcast has covered insurance, such as...

What 5 factors create poverty?

Welcome to Finance and Fury, the Furious Friday edition This episode is a flow on from the previous furious Friday episode question from Nick, about poverty. Last episode we talked about how poverty is defined and the economic factors of poverty, which play only a...

Say What Wednesdays: Financial Advice – The process, the costs, and if seeking advice is for you

Welcome to Finance and Fury, the Say What Wednesday Episode, where every we answer questions from you guys! This week’s question comes from Nelson, “Hi mate, Love the podcast. Admittedly don't agree with some of your more conservative political opinions but that aside...

Say What Wednesday: Paying your home loan off with debt

Say What Wednesday Paying your home loan off with debt How can you pay off a mortgage with debt? Velocity banking and Offset accounts This question comes from Tom a podcast listener. He asks “Just wondering if you have ever used Velocity banking at all to pay down...

Pin It on Pinterest

Share This