There is talk that the stock market is going to crash by end 2016. I don’t know whether I heard it from the Bomohs or from friends.
Either way, I am not a very good forecaster because if i did know about a crash, I would be a billionaire already.
In the event that there is a stock market crash, here are 3 reasons why you should be happy.
1) You Enjoy Buying Stocks At A Cheaper Price
Think about it this way, the stock market will crash, but did you know that a crash only lasts for so long?
If you take the time to craft a long-term strategy and think of picking stocks like a business owner, you will develop a type of mentality where you appreciate falling prices of stocks because it allows you to buy into good companies at cheaper prices.
When I invest, what I usually try to do is to buy the most earnings (in the form of dividends and retained earnings) at the lowest price I can.
In fact, let me give you an example. Say you hold shares in OCBC. It would make more sense for you to root for lower stock prices if you have the mindset of a long-term owner.
If during this period, OCBC buys back its stock, you are getting more and more ownership of the company because there will be lesser owners getting a portion of the earnings pie.
Also, if you are planning to reinvest the dividends back into OCBC, it makes logical sense to want lower prices because your ownership stake represents more earnings and results in more dividends.
2) You Gain A Better Understanding Of The Companies
What is your objective in buying a stock? Did you buy it based on your homework or did you buy it based on what your neighbours tell you?
The true test of whether you know you’re investing and not speculating is during a market crash. During a crash, the majority of the stocks that you hold will drop in value.
If you are able to hold on to the stock, it means that you are emotionally disconnected with the market. It also means that you have already done homework about that stock.
In a way, investing during a market crash is similar to being married. In marriage, getting through difficult times will make your bond between your spouse stronger.
It is the same in investing. Getting past the difficult phases during a downturn will only make you truly understand the stock.
3) You Come Out Earning Even More Money
I want you to look at the richest people on Forbes. Were they richer before or after the market crash? Chances are, most of them are even richer. Warren Buffett and Bill Gates were richer after the crash than before the crash.
They had the conviction to hold their stock through difficult times, refusing to sell. When everyone else in the market are panicking, they seize the opportunity to purchase more shares at a cheaper price.
Then, when the market picks up, they ride the wave and the share prices of the companies they own such as Microsoft and Berkshire Hathaway rise again.