Will The Stock Market Crash One More Time in 2020?
31 August 2020
My Bet: In 2020, The Stock Market Will Not Crash Again
Yes, it is hard to predict where the stock market is heading in the short term.
But my bet with regards to virus-related concern is that I do not think that we will crash again back to March-April Lows in 2020 just because of the virus.
Here Are Four Reasons Why I Think The Stock Market Will Not Crash Again to March Lows in 2020:
#1 We Now Know More About The Virus
Why does the market crash?
In my view, a serious market crash happens because of uncertainties and “shock factor”.
Events like the COVID-19 and the financial crisis back in 2008 resulted in a serious market crash because they are shocking and nobody predicted it.
So in times of uncertainties, the market crash.
Just like in WW1, WW2 so on, and so forth.
It is a fact that now we know more about the virus than we did when it first happened in March-April 2020.
So right now, the uncertainty factor is gone.
As a result, the market is back to its previous high and more.
We need another black-swan and shocking event to cause another crash.
#2 A Safe and Effective Vaccine is Almost A Certainty
We now know that the COVID-19 virus can be defeated.
A vaccine that is effective against the COVID-19 virus can potentially be created.
To me, it is almost a certainty.
It is just a matter of time.
In fact, while FDA requires the vaccine to be at least 50% efficacious for them to be approved, Bill Gates mentioned in an interview that he expects the vaccines to eventually be around 80% efficacious.
Just today, the US again floated the idea of early COVID-19 vaccine approval.
The current three leading vaccines companies are AstraZeneca which is partnering Oxford University, Moderna which is collaborating with the US National Institutes of Health and the Pfizer/BionTech alliance.
The US Food and Drug Administration is one of the most well-respected organizations in the world to approve the safety and effectiveness of vaccines.
I am sure the FDA will only approve the vaccine only if they are proven to be safe and effective based on scientific evidence.
#3 It is Hard to Bet Against Human Spirit of Resiliency
For the pandemic to be put to a halt, we need enough people to take the vaccine.
If there is one thing we can learn from history is: It is hard to bet against the human spirit of resiliency.
When things get tough, humans have proven to be very resilient.
We have been through WW1, WW2, the financial crisis, and many other horrible situations before.
Not only we survived, but we also grew.
Case in point: To make a vaccine, it usually requires a couple of years, but when humans put their minds to it, things get done. I believe a safe and efficacious vaccine can be made (and is in progress to be made) in less than a year.
We have grown accustomed to wearing a mask and do social distancing, once more people take the vaccine – when it is proven to be efficacious, I am sure we will prevail and grow.
#4 TINA – “There Is No Alternative”
In a low-interest-rate environment, there is little competition against stocks.
Stocks, which represent ownership in companies are very attractive when you compare them to bank interest rates or bonds.
Based on BNP Paribas, bond yields are set to remain low for an extremely long time.
The hunt for yields will instead shift to stocks, for example, the safer and growing dividend stocks commonly known as “dividend aristocrats”.
When there is not much attractive alternative to put our cash to good use to avoid losing money on inflation, stocks become a very appealing consideration.
So, Will The Stock Market Crash Again in the Future?
This is a certainty.
But it is also a certainty that nobody have the crystal ball to predict exactly when the stock market will crash.
So… Should we try to predict the next stock market crash?
I think that more money has been lost trying to predict the next stock market crash than the actual crash.
Here’s a headline in CNBC back on July 6, 2020, that predicted a doom: “Financial analyst Gary Shilling says the stock market could see a 1930s-like decline“.
And now, the stock market has recovered to more than the previous high.
Again, like the Legendary Fund Manager Peter Lynch said, more money has been lost trying to predict the next stock market crash than in the actual crash.
The key is: Invest properly, don’t gamble.
We must only invest in companies we understand well and at a valuation that is reasonable.
As Warren Buffett says, Gambling in the stock market is a losing proposition.
Although I predict that it is unlikely that because of the SAME virus concern, the stock market will hit earlier March-April 2020 stock market lows, we should invest prudently.
I always believe that we should have a balance of emotion when investing.
Do not partake in madness in the stock market with stocks that are too expensive.
The party is bound to stop one day.
Stay invested in the right companies that continue to grow and that we bought at reasonable prices.
Over the long run, the odds are likely to be with us.
So stay safe, and may 2020 be a good year for us – as investors of the stock market!
Another must-read: The Intelligent Investor Summary (Ultimate Guide) | Re-ThinkWealth.
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Chris Lee Susanto
Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.
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