Is it possible to predict the next stock market accident

One of the most popular topics in 2020 is when the next market accident happens? We (and we are still) in the middle of the global pandemic and we want to know how it affects our stock market and investment. Many predict hard accidents at the end of 2020, but nothing happened. Or have it?

What we are interested in today is – Can you succeed in predicting the next stock market accident? Well, the answer is just simple, as you will see in one minute. To answer that question, we will discuss some of the basics of the stock market, revisit a number of famous market accidents historically, see what we can learn from there, and whether it is enough for us to predict the next market accident. Let’s start.

What can cause the stock market to fall?

Throughout history, we have witnessed several significant market accidents and most of them have some similarities. Therefore, some suggest that the main causes of market crashes are:

The market is considered too high

Financial Engineering

External catalyst

With that thinking, this is what you have to understand.

The market is too high

The market is currently considered too high, but what does it mean? This means that the price-to-income ratio (later called P / E) is higher than it should. How do you know what it should be? Well, historically, the average S & P 500 ratio is 15.78 and which now sits above 20, which means that the market is around 30% rated too high. Does that mean that the accident towered at the corner? Not really. The market can be considered too high for a long time, so, this is not enough to predict the accident. For a better understanding of this particular phenomenon, we recommend looking for the Shiller PE ratio, because it might help clean up confusion.

Financial Contraption

Identifying financial tools is much easier in retrospecting, which is why no one can predict or stop the semi-2000 and 2008 market crashes that are previously caused by this tool. One is caused by investment related technology that is too excited and the other because of the real estate price bubble – which is something we caused in ourselves.

External catalyst

This is an outside event, not related to the stock market that can cause unexpected dips and crashes. For example, after 9/11, the market dipped more than 7% on the first day of trading after the attack.

Look closer to market crashes throughout history

Let’s look at some of the famous market accidents throughout history.

Accident 1929.

This is the worst accident in the stock market history. It not only destroys the US economy but the lives of many families that have never recovered from them.

In the years before the accident, the market increased 350% for six consecutive years, which made people invest everything they had and more to the stock market. However, everything came down on Tuesday 1929, where the market fell 10% in a day. If it’s the tip, it will be good. However, in the following years, the market lost almost 90% of its peak value. People lost almost everything and who marked the beginning of great depression. It took 23 years to restore the market.

2008 stock market crash

The newest, Major has a crush, happened in 2008 and it was very significant so they made a film about it. Basically, what happens is, the price of real estate skyrocketed in the US and people borrow money to the left and right to buy and turn home in a few months to get a profit. That sounds similar, right? Finally, the price is very high so the buyer disappears and the price falls down. People cannot sell their homes that quickly lose value, but they are left with mortgages and very expensive loans, forcing them to go bankrupt. However, not only people are bankrupt. The banks that lend the money were also below and the entire system came crashing like a home card. On the good side, this time ‘only’ takes 5 years to be restored.

Can you predict market accidents based on what you know?

So, we have determined that the market is currently considered too high and that we have not experienced a big accident in 13 years, but what does it mean? Can you use that knowledge to successfully predict the next accident? In short – no.

Said the accident would occur not predictions, it stated clearly. Guess correctly when it will happen really impossible and this is why.

Stock prices proved random

You can’t ‘time’ market

We cannot predict the previous one

Let’s show this.

Random stock prices – it’s a proven fact. We might think we can recognize patterns on daily nails and dips, but it’s not true. We just think we can see patterns because we are taught and trained to do it. It’s the same as flipping coins. Turn over time and just look at the results data and you will get the impression that there is a pattern formed, but we both know that the results are truly random.

This is what makes the market impossible. You can’t discuss it. You cannot sell high and buy with low success. This is just pure luck. Past prices do not affect the future. Everything is random. Those who sell their Bitcoin in 2017 thought they made the right steps, especially after it dropped in the following months, but saw prices today and you will soon realize that they are wrong.

Also, if predicting a possible market accident – which previously would not occur. At least not the way they have. We are ready.

What can you do?

So, what does it mean? Should you give up? If an accident cannot be avoided and cannot be predicted, does that mean you should not invest in stock? Well, www.beststocks.com certainly disagree with it. You see, historically, the market always recovers. Is it needed 20 or 5 years, the price always returns. If you see the market think the last 100 years – continue to grow. Sure, if you are in the game long enough, you will go through a fair share and crash, but you will always be better just wait for stock to return – because they will eventually do it.

What this means – Forget about being rich quickly and predict market accidents so you can generate more money, because, the truth – it can’t be done. Instead, focus on long-term investments and you are sure to make money in the long term, even if the market crashes along the way.