A year ago, I blogged about the trend that the stock market usually experiences a crash whenever the year ends with 7 (see Another Year That Ends with 7). As it turns out, not only did the stock market not crash, it rose significantly. The STI rose from 2,880.76 to 3,402.92 for a 18% gain!
So what happened? Instead of lacklustre growth like the years before it, the global economy in 2017 staged a synchronised recovery. Locally, the government relaxed property cooling measures and both banks and property developers gained. The strong growth caught many people by surprise, including myself. So, what do I still think about the folklore that the market usually experiences a crash whenever the year ends with 7?
A year ago, as mentioned in my post, I had experienced the crash of 1987, 1997 and 2007, so it is a folklore that I respect. However, to believe and act on it, I need evidence that either the stock market is at dangerously high levels or the economy is on the brink of a collapse. Back in late 2016/ early 2017, I was concerned that the massive liquidity pumped by central banks around the world was propping up asset prices, but that did not help the many companies in many industries that were facing poor business and/or low margins. See What Have We Got After 8 Years of Easy Money? for more info.
A year later, as I revisit the above blog posts, the situation has improved for most of the industries mentioned, particularly for banks and properties. However, other industries have only seen modest and/or uneven recovery, such as Oil & Gas and shipping. In addition, there are industries that are still in decline, such as shipbuilding. Even though the consensus economic outlook is promising in 2018, I remain on the defensive. My own assessment of the financial market and economy plays a more important role in my investing decisions than whether the year ends with 7 or not. Certainly, I am not rushing to invest in the stock market just because the market has safely passed 2017.
Even though the market did not crash in 2017, the folklore that the market usually crashes whenever the year ends with 7 is still something that I respect. But to believe and act on it, I need evidence. That viewpoint has not changed.
See related blog posts:
HNY Chin Wai,ReplyDelete
Hmm... no single man is able to predict definitely not based on previous pattern anymore. The past is not a yardstick for the future, no more.
Perhaps, something like an all weather portfolio meaning “good or bad markets”, still reasonably good or ok, not fantastic.
Good market last too long on surface, may also trigger a hard sharp depressed market.. maybe?
Happy New Year to you too!
Agree with you that nobody can predict the market with good accuracy. I am not saying that history repeats itself in a fixed pattern, but we should assess where the economy & market are heading and act accordingly. Whether the year ends with 7 or not, we should do this assessment.
Being contrarian is always not easy. All the best in the new year!
I was expecting a crash too, since mid 2016 when brexit was an issue. But well, the key is to always remain invested in the stock market but with sufficient warchest (cash) to buy when the crash happens.ReplyDelete
Yes, this can be a good strategy, which takes the guess work out of investing.Delete