Holding Cash Waiting For The Next Stock Market Crash - Genius idea or fatal mistake?
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In this video, we dive into the data to work out if holding cash in anticipation of the next stock market crash is a genuine strategy, or one that's going to leave you in the dust.
Now this is a situation we all find ourselves in at times. And we all ask exactly the same question.
You're sitting there with cash that you want to invest but you're also looking at the markets, that are currently sitting at an all time high and thinking, surely they have to come down from this point. They have too, it's almost a given. And surely if I just wait for them to drop, or I just put in a limit order, below where the price is now I'm sure to get in a better price.
Limit order - [https://www.investopedia.com/terms/l/...](https://www.investopedia.com/terms/l/...)
But is this really a good strategy? For these two work two things that need to happen:
1) The markets need to drop to hit whatever target price we set
2) We need to actually buy when the time comes, and don't chicken out or get too greedy
We can get a good indication of just how likely this first part is to happen simply by looking back at historical data. But the second part is going to involve digging into the behavioural challenges that you will face, the emotions and the biases that will need to be overcome to execute this strategy properly.
*The Data*
Please feel free to make copies of this and play around with it.
The data has not been topped and tailed. Some of the ATH's at the start of the data set may not actually be ATHs. Likewise, time has not progressed enough to truly tell whether recent years may actually hit our price target in the future. I decided that the data set was large enough that these would not have a massive impact. But if you want to have a go and make some better assumptions please do so and let me know the results in the comments.
-20% Price Target (1960-2021)
[https://docs.google.com/spreadsheets/...](https://docs.google.com/spreadsheets/...)
-20% Price Target (1980-2021)
[https://docs.google.com/spreadsheets/...](https://docs.google.com/spreadsheets/...)
-10% Price Target (1980-2021)
This has better chances of paying off, but you need to remember that after you've taken off any lost dividends your potential return is very small in comparison with the potential loss. The risks are asymmetric. It's kind of like picking up pennies in front of a steamroller.
[https://docs.google.com/spreadsheets/...](https://docs.google.com/spreadsheets/...)
00:00 - The Question
03:32 - The Data
10:31 - The Psychology
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