Bitesize: What to expect when you’re expecting (a crash)

Alec: [00:00:07] Welcome to Bitesize on Get Started Investing. In this series, we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes. So I think the question that we have to ask to end this episode is, is this a dead cat bounce? What in finance does is term a dead cat bounce? This is just where the term comes from, there's an idea that even a dead cat will bounce if it falls from a great hall. 

Bryce: [00:00:43] Okay. How does that Actually play out? What are we talking about? 

Alec: [00:00:45] So the idea is, if a stock falls enough, there will be some it will have some legs up and then. 

Bryce: [00:00:52] Before it actually falls to the ground. 

Alec: [00:00:54] So rather so we can ask, you know, all these companies, all these indexes, these markets fell and then they've come back up a little bit. The question is, are they actually recovering or is this a dead cat bounce? It's a small, brief recovery in the price of a declining stock. If you look back in history of the stock market crashes over time, there have been dead cat bounces. Yeah. So if we go all the way back to the Great Depression of 1929, the stocks fell 45%. But then from late 1929 to early 1930, stocks rose 47%. So it's not bad. Yeah. Now, remember, if something falls 50% or halves in value, it has to go up 100% to get back to even. Yeah. So fell 45%, up 47% and then fell 80% from there. Ouch. That's like the classic example of a dead cat bounce. But in other stock markets falls, there have been similar dead cat bounces. The global financial crisis in 2008 saw the initial fall and then actually a gain of more than 25% and then a further fall. We've got this chart from the 2000 to 2002 bear market. We'll get this up on Instagram on Wednesday's episode, going out Monday. We'll post on Monday so people can check it out. There were three separate rallies of around 20%. But over the two years, the stock market fell 50%. Hmm. So I won't read you through it, but it's like, you know, it's like down 27%, up 19%, down 26%. So I guess the long and the short of what we're trying to say here is that the stock market crashes are never linear. It's never just down, down, down. It's never the calls red, a red hand down. That won't make sense if people are listening overseas. But yeah, it goes up and down. But over a stretch of time, it's a lot more down. 

Bryce: [00:03:00] And trying to play that game is often. 

Alec: [00:03:05] Or don't try and time the market. 

Bryce: [00:03:07] You're just going to get into a world of hurt. So I guess that leads to the question, Ren, what do we expect to play out in 2022? How are we going to play it? 

Alec: [00:03:18] I think it could be a dead cat bounce. I think the market could fall more. I think the challenge is, especially if you look in America, Amazon, Microsoft and Apple, as long as they keep doing their thing, the S&P 500 index and the NASDAQ 100, like every other companies, are really going to have to drag it down because they're just those three so big. 

Bryce: [00:03:42] Yeah, that's if you're an index investor. 

Alec: [00:03:43] Yeah. You know, interest rates might rise. I think this year will be one of the hottest for us in our investing lives. Our very short investing lives so far. Yeah, but I'm excited by that because it will give us an opportunity to put cash into the market at lower prices. There might be some individual stocks that become really attractive. You know, it's never good that the market falls, but I'm going into it being like the value of my portfolio might fall a bit, but this is the opportunity for us to set ourselves up for the next however many years we live. Hopefully, Century. What about you? 

Bryce: [00:04:23] Yeah, look, I've learnt the lesson that trying to, but trying to predict what's going to happen over the next 12 months and subsequently putting in place a strategy that would work in favour of that prediction is the wrong thing to do. It's impossible to do that. 

Alec: [00:04:41] Do remember when you would call a market crash every year. 

Bryce: [00:04:45] And it just didn't play. I learned my lesson from that. I seriously find this event so like similar to the vibe that's going on at the moment, it feels like there is a chance that we're going to see a lot more red this year. It might not. It might not pan out that way, but I'm not changing my portfolio makeup at the moment. I'm not changing how I'm investing two to play into that thesis. I think one of the things that I really have in the back of my mind was when we spoke to Marcus Padley and he's just kind of like you got to assess it, the information at the time, like when it's happening, you can make some decisions, but there's no point trying to predict and Make the decision before it happens because you're an idiot if you do that. And so for me, the only thing that I will change is I'm probably not going to be. I'm not putting money into the market as frequently and in as large chunks as I had been over the last few years. And that's one way of sort of keeping a bit more cash on the side for the opportunities that might arise. But I'm not putting in, you know, bear positions or, you know, I'm not trying to go hard on value all of a sudden and all these sorts of things like the companies in the way that I've invested, I still genuinely, genuinely think over 30 or 40 years that's going to be the winning portfolio. 

Alec: [00:05:59] So I like that.

Bryce: [00:06:00] Until it does start really turning and the environment changes. I'm just going to enjoy the content that we're going to create from it.