Hardly a week goes by without some analyst or economist warning about the next stock market meltdown. Unfortunately, we’re prone to take note of such dire warnings. After all, our ancestors did far better being highly attuned to potential danger than not.
But the thing is, these predictors of stock market crashes in the financial media are rarely held accountable. They appear on TV or in print to make some alarmist prediction about the direction of shares. And they often seem confident, adamant, and therefore convincing.
But when the market doesn’t crash — these events are relatively rare — they’re seldom grilled on why they were so wrong. For such people then, a reputation can be cemented by correctly calling one stock market crash, but rarely tarnished by wrongly predicting many.
It’s not worth missing a bull market
The truth is, nobody knows when the next stock market crash will happen. This uncertainty is why long-term investing can sometimes be emotionally taxing. We’re like marathon runners trying to keep the finishing line in sight while people on the sidelines are shouting about scary things that might be around the next bend.
So what’s an investor to do?
Well, I think it’s important to remember that there’s always a macroeconomic data point to get worried about. For example, following the 2007-08 financial crisis, public debt skyrocketed after governments bailed out banks and pumped money into the financial system.
Any investor at the time would have been justified in worrying about this mounting sovereign debt. Yet if they’d been scared into keeping their money out of the market following the financial crisis, they would have missed out on one of the best bull markets ever.
Today, there are many possible things for UK investors to potentially fret about. One could be the latest figures from the government’s Insolvency Service, which shows that the number of compulsory liquidations in July was 81% higher than the same time last year. That’s a worrying statistic, for sure, and could mean the UK economy is heading for a recession.
But that’s not guaranteed, and besides, there have been dozens of previous recessions. Trying to predict how the market will react one way or the other is a fool’s errand. That’s why I wouldn’t hang around for a potential stock market crash before buying cheap UK shares.
Being paid in dividends as I wait
We know from history that over time the market goes up more often than it goes down. What’s more, the FTSE 100 has never failed to beat a previous all-time high. Not once. It may take a while, but it does go higher.
In February, for example, the Footsie reached an all-time high of 8,014 points. Now, as I write, it’s slipped back to 7,338. But I think it’s just a matter of time before we’re looking at 8,000 again, then 9,000.
Meanwhile, I’m getting paid passive income from high-yield dividends as I wait for the next leg up. And when the market does crash again, as it inevitably will one day, I’ll buy cheaper stocks while I wait patiently for the next bull market.