Does This Signal Mean Stocks Will Crash Soon?

Almost every week of every year, somebody on television or in the media says stocks are going to fall hard.

Warren Buffett doesn’t listen.

He never sells based on his forecasts or anyone else’s. His favourite holding period is “forever.” Economists have predicted about 100 of the past 3 market crashes. If you acted on even 10% of such predictions, you would never make money.

Nobody can see the future. 

The latest such warning relates to something called the inverted yield curve*. It’s supposed to signal an upcoming recession. It’s supposed to have a perfect track record signalling recessions.

But does a recession means stocks will fall? Nobody REALLY says that,

Image by Pixabay

Here’s why

* Definition from Investopedia: An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality.

 




no one has more first hand experience helping expat investors



Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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5 Responses

  1. Chris says:

    Hi Andrew,

    First, thank you for publishing two very informative books. You’ve introduced me into the world of ETFs and I’m grateful for what you’ve shared with your readers. I’m in a bit of a dilemma here and I’m hoping that you can share your thoughts on these two questions:

    Location issue –
    1) I’m currently 30, live in Hong Kong and plan to retire here in the future. I’ve read your post a couple of years ago about the newly released ETFs by Vanguard in HK. Unfortunately, Vanguard doesn’t have a global ETF similar to VWRD/IWDA, so I’m left with 3140.hk (S&P500), 3126.hk (Japan), 3101.hk (Europe), 3169.hk (China) and 3085.hk (Asia ex Japan) to choose from. Should I be investing in a collection of stocks in the HKSE (because I’ll be in HK for the long term) or just VWRD/IWDA in the LSE. This leads to my next question…

    Liquidity issue –
    2) The volume of the aforementioned stocks from Vanguard HK and VWRD are very, very low and so I’m worried about the issue of liquidity. This is also the reason why I chose 3141.hk (BMO Asia IG Bond) over 2821.hk (ABF PAIF ETF) when considering the bond exposure, even though the bond rating is better for 2821.hk. I understand that you’ve recommended 2800.hk (which I have invested), VWRD, and 2819/2821.hk in your book, but I’m just torn on which to choose for global stocks and asian government bond due to liquidity issues. I am debating on the following for my Couch Potato portfolio:

    HK Stocks (40%) – 2800.hk (invested)
    Global Stocks (40%) – should I go with VWRD or IWDA or a collection of Vanguard HK ETFs (3140.hk, 3126.hk, 3101.hk, 3085.hk)?
    Asian bonds (20%) – should I go with 2821.hk or 3141.hk?

    Apologies for the long entry and thank you for your time!

    • Hi Chris,

      VWRD has more than sufficient trading volume. You could then add a global bond market index, something like AGGG.
      There’s no need to overthink this. Buy from the London Stock Exchange.

      Cheers,
      Andrew

  2. Ronan Dempsey says:

    Hi Andrew. Finished Expat millionaire for the second time on kindle….. Bought the paperback aswell to have on hand just in case. !!!!Eye opening stuff and many thanks for passing on such knowledge.

    Q: I plan to buy funds as you advised early Sept ( next week!) .Any updated advise re funds to buy through internaxx Luxembourg ? Otherwise I will follow your advice from the book for European and Irish Expats!

    Regards
    Ronan

  3. D'Arcy Sokol says:

    Hi Andrew,

    I’m an passive index investor now, thanks in no small part to your Millionaire Teacher book. I find myself passing your book around and taking on questions from those challenging your concepts.

    I’m not sure where to post this, so I figured your most recent article. This article was posted in Forbes earlier in the year and I wonder what your take is. It basically states the opposite of your philosophy. Perhaps it’s a convenient selection of data or maybe active managers fighting back, but I’m curious to know what you think:

    https://www.forbes.com/sites/robertlawton/2019/04/07/why-most-index-funds-and-etfs-are-not-good-investments/#3017b3975557

    Thanks again,
    -D’Arcy

  4. Subash says:

    Hi Andrew,

    whats your take on the view by Michael Burry? Do you think Index investing creates a bubble by allocating more money to less traded companies than the amount should have been invested?

    News source below–

    The Big Short’s Michael Burry Explains Why Index Funds Are Like Subprime CDOs —
    https://bloom.bg/2zRiZVR?fbclid=IwAR3j-hjPqSQf_Xc54haPpLZubqYo40DKUWwbTuuV9SNzEBrHwiDDafHdHAA

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