Urgent Crash Warning: Sell Everything NOW!

Mark your diary — crisis due between April 2015 and March 2016…

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

These days it doesn’t take much to fire up the doomsters.
A rough week for the FTSE 100 (FTSEINDICES: ^FTSE) and all of a sudden, it’s time to swap the party hats for the tin hats…
…at least according to the e-mail that screamed into my inbox just the other day.
Finance expert sounds alarm on 8 ways a new global crisis will hit by 2015” was the subject line.
 Uh oh. Not just one reason why a new global crisis will thump our wealth…
…but EIGHT!
Things must be bad.

Mark your diary — crisis due between April 2015 and March 2016

Arturo Bris is the latest bear taking the fight to the bulls.
Like you probably, I have never heard of him either, but apparently he is a Professor of Finance at the ‘top-ranked’ IMD business school. So I guess he must know his stuff.
Anyway, Mr Bris predicts:
Based on statistics, the world could expect a financial crisis as soon as April 2015, ending in March 2016.
He then goes on to claim the crisis WILL be caused by one of the following reasons. (I’ve extracted the key text for each point.)

1. A stock market bubble

“If markets were to revert to a reasonable level with regards to earnings, there will be a stock market drop of between 30-35%.”

2. Banking in China

“A severe crisis could be driven by growing Chinese shadow banking, a system which consists of loans mainly to government institutions whose performance is not well monitored and not open to competition.”

3. Energy crisis

“[If] the United States, as the world’s largest producer of gas, begins exporting to the rest of the world, Russia might feel threatened, causing a geopolitical storm.”

4. Another real estate bubble

“There is a risk of a property bubble forming in countries like Brazil, China, Canada or Germany.”

5. Ratings and bankruptcy corporate crisis: ‘BBB as the new AA’

“If ratings are an indicator of bankruptcy, there will be bankruptcies across the board. If interest rates increased by 2%, half of the corporate sector would be wiped out.”

6. War and conflict

“There is increasing geopolitical tension…. Events like the current crisis in Crimea, could trigger a market crash, even if there is no war.”

7. Increasing poverty

“Overall world poverty has increased and whenever the poor become poorer, we can expect a social conflict.”
8. Cash and hyperinflation

“The surplus of cash that central banks and corporations are holding could end up damaging the economy.”
Wow, some bold claims there.
My favourites are 1 and 5. I mean, markets falling 30-35% and half of the corporate sector being wiped out sure sound worrying.
And you never know, Mr Bris may actually be right. We could be on the cusp of a crash.
Indeed, given how far the FTSE has surged during these last five years, plus with the Dow hitting 17,000 and the VIX ‘fear gauge’ running close to 20-year lows…
…heck, we must be overdue at least some sort of correction.

So perhaps NOW really is the time to take the contrarian view… and sell everything quickly before racing for the bunker

Or perhaps not.
Sadly, my ‘Market Crash Crystal Ball’ is a little cloudy today, just as it was last week, last month and last year.

Nonetheless I admit — selling shares can be a wonderful hedge against market slumps. But only if you are truly prepared to redeploy the cash back into the market at the right time…

Trouble is, too many investors sit on the sidelines with too much cash for far too long.

They wait for the opportune moment to get back in, then wait some more, and some more, and even some more… and before you know it, the opportunity has passed.

You see, only in hindsight can you pick a market top or bottom. Even Warren Buffett couldn’t do it during the credit crunch.
I mean, as far as I know, he was still investing throughout 2006 and 2007, just before the financial crash… and was still telling everyone to buy in The New York Times during the slump — albeit months before the market eventually turned.

So if Buffett can’t time the market, what hope do us mere investing mortals have?

So let me put all today’s worries, anxiety and gloom into perspective

Rewind 7 years to 15 June 2007, when the FTSE hit 6,730 and its pre-crisis peak.
Now, if you had been told back then about what was to actually happen during the next few years…

…that there’d be a savage bear market and the index would drop 50%, and that banks would go bust and require multi-billion pound government bailouts…

…you’d be forgiven for never touching a share ever.

However – and I know this is difficult to believe – even at the pre-crunch high of 2007, fortunes were still being created by ordinary investors actually buying.
Just check out the chart below:


Source: Capital IQ

While the FTSE is down 1% since 15 June 2007, quality blue-chip names such as Ashtead, ARM and Hargreaves Lansdown have each FIVE-BAGGED…
…just going to show there are always bargains waiting to be bought by smart investors… even when the doomsters are right and a market crash is just around the corner.
Anyway, our friend Mr Bris says:
Too often we do not learn from history and do not act when faced with a crisis we know is imminent.

Mate, I think what we can learn from history is that, rather than fretting about a market correction, waiting for a market crash, or simply doing nothing…
a much better bet is to regularly and consistently invest in quality stocks at cheap prices and hold them for the long term.
At least that is what I will continue to do.

Let’s just see where we are between April 2015 and March 2016 — when the crisis is predicted — shall we?

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Maynard does not own any share mentioned in this article. The Motley Fool has recommended shares in ARM Holdings.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »