The “buy the dip” Teleprompter readers of financial news and 30-year-old portfolio managers who have never seen a market crash insist that stocks are still going to the moon. Market veterans and “Hey Boomer” pros have seen this show before. In 1987, the Dow Jones Industrial Average plummeted an astonishing 22% in one day. Today, an equivalent drop in the venerable index would result in a collapse of an incredible 11,000 points.
So where Are we now? It is quite possible that we anticipate a significant decline, like the one earlier this year, with all major indices trading at all-time highs. One thing is certain: If inflation rises, the war in Ukraine continues, peace in the Middle East does not hold, and our crushing national debt, approaching $38 trillion, spirals further out of control, the path of least resistance will likely be down. Investors should consider some crucial elements now as they may have to prepare for another correction in 2025.
a positive one is that consumers and businesses are generally in reasonably good financial shape. Stock portfolios and home prices have risen dramatically in recent years, and the economic system is not teetering on the brink as it was globally in 2008, when Bear Stearns and Lehman Brothers collapsed. To avoid a similar fate that year, Merrill Lynch was purchased by Bank of America. While we’re not hitting the panic button, when seemingly everyone on Wall Street remains perhaps overly optimistic, safety precautions might be necessary now.
a positive one is that consumers and businesses are generally in reasonably good financial shape. Stock portfolios and home prices have risen dramatically in recent years, and the economic system is not teetering on the brink as it was globally in 2008, when Bear Stearns and Lehman Brothers collapsed. To avoid a similar fate, Merrill Lynch was purchased by Bank of America. Therefore, it makes sense to build a cash position like Warren Buffett has in anticipation of a correction. Comparing current losses to gains, even if they are short-term, makes sense to help generate a cash offer. The proverbial dry powder may come in handy in the future.
The margin is Money loaned to a broker to purchase an investment. When times are good, using margin loans to buy more stocks is a bad plan for individual investors, especially when those margin positions are high-volatility momentum stocks. If the market crashes, a highly leveraged investment account could be destroyed.
