The next market crash can't be far off. It's been 16 years since the last crash in 2008. Speculation and human hubris have not disappeared. Over a billion dollars were withdrawn in a single day this week from two bitcoin ETF's. The next crash might be called the Bitcoin Blowoff.
When the market crashes, it makes a huge difference whether you own Home Depot in your own name or by owning shares in a mutual or index fund that owns Home Depot stock.
Shares of Home Depot are selling for around $400 apiece today. Suppose you own one share. The market crashes. The share price falls to $200. You don't panic. You don't sell. Three years later that share price is back to $400. You don't lose a penny.
Why did this take so long?
Now let's suppose you are invested in an index fund or a mutual fund. The fund owns one share of Home Depot worth $400. Suddenly the market crashes. Depositors are demanding the immediate return of their money.
Other funds are dumping the shares of terrific companies. The prices of even the best stocks are cratering in the panic and rush to liquidity. The price of Home Depot falls to $200.
Even though Home Depot has proven to be a terrific stock, the index fund is forced to sell it. Later, when the market recovers, Home Depot returns to a $400 valuation.
You are a "smart investor." You didn't panic during the market crash. You held on to your shares of the index fund. But it doesn't help. Your index or mutual fund took a $200 loss in Home Depot. The value of your index fund shares got kicked in the teeth.
So what should you do? If you can do so without huge tax consequences, you should sell your shares in your index funds and buy the individual stocks. When the market finally crashes again (it is very past due), simply hold on and wait for a market recovery.
You should also consider investing in fractionalized first trust deeds. If you pick a good trust deed, and your borrower keeps making his monthly payments, you don't care if the market crashes. "Frankly, my dear, I don't give a hoot."
It wasn't really a shark tank, and it was time
for him to learn how to swim anyway.
