Does the stock market fall deep enough?

market fall

Recently, a few friends have been asking me if the stock market has fallen enough. I later wrote this article “How to deal with market crash or sharp pullback?“, you can refer to it if you are interested in this topic.

Current market conditions

Stock market fall staring last September, and it looks like will continue.

Bull market ends

One thing seems certain, all stock valuations have gone through the bull run of the past 13 years, and since the beginning of the third quarter of last year, starting with the growth stocks sector, they have all started to decline from their all-time highs.

As of today, the Nasdaq has fallen by about 30% from its high point, and it has been in a bear market for a long time. The more representative S&P 500, which has fallen 19% from its peak, is already on the doorstep of a bear market, and it is very close to the bear market standard of a 20% decline. The Dow Jones Industrial Average, which represents large industrial and traditional companies, was down 15% at its peak.

At this year’s Berkshire shareholders meeting, Buffett and Munger were again harshly critical of the market frenzy. In fact, the Buffett Index, proposed by Buffett himself, has exceeded 200%, which represents the overheating of the stock market, for many years.

Is it safe now?

If you ask me, is it safe to enter market now? Or when will stock market fall end? For questions like this, my answer is “I don’t know”.

Bernard. Baruch said, “Don’t try to buy the bottom and sell the top. No one has a way to do that, except a liar.” No one can predict the highs and lows of the stock market, but at least all stocks fall a lot, the margin of safety has been raised. This should not be a bad thing for long-term investors. This is what Warren Buffett said, “When stocks go down, investors should be happy; unless you’re going to sell stocks tomorrow.”

Keep in your mind — stock market fall is part of stock investment. In the stock market, nothing is 100% certain to happen. I suggest you refer to my other blog post “The uncertainty in Investing” for instructions.

When does the stock market fall deep enough?

I’ve been thinking about this. Few people have the free time to keep an eye on the market; unless it’s your job. So are there any indicators or signs that can be used to judge “when does the stock market fall deep enough?” Want to have “accurate” indicators, no, unless you are God. But there are still a few signs that can be provided for your “reference”.

When friends around you, especially those who used to talk about stocks much, no longer talk about stocks and dare not mention how much money he lost in the stock market last year. Everyone scorns or ridicules the recent times when buying stocks is a fool, especially when the media is full of bad financial news, notable business failures, bankruptcies, massive layoffs, and soaring unemployment. Well, at this time, it is almost there.

Situation in US

The U.S. market can see whether Buffett has made a big move and is busy buying critical companies around, or whether the media reports that this old grandfather spends money and makes big purchases in the stock market (please pay attention to my wording, “big purchases”). Almost all the cash accumulated in the bull market of the past decade is almost exhausted.

If the Fed will change its monetary policy and propose a rescue strategy, it must be that the market situation is very urgent and the Fed needs to adjust its policy to rescue the market.

Situation in Taiwan

Whether Taiwan stocks have fallen enough? there are some signs. Taiwan is a democratic society, and votors are very important. First of all, it depends on whether the government authorities have come forward to appease investors. Of course, the higher the level of authorities, the different meanings of sign and representation. Then the so-called eight major state-owned-enterprise banks, the buying of financial institutions of these official stocks are another bellwether that investors can immediately observe.

market fall
Credit: Bodsa

The clearer signal is whether the National Stabilization Fund has entered the market. Considering the history of Taiwan stocks in the past 40 years, the National Stabilization Fund has entered the market and purchased aggressively. It does have a boosting effect on investor confidence and can also play a role in supporting the market. The market value of the Taiwan stock market has grown a lot, coupled with the effect of the increase in the proportion of foreign investors. Even if it cannot be repeated 30-40 years ago, the National Stabilization Fund still has a powerful role to support market and enhance investors’ confidence.

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