When most people feel that it is the best time of economy and stock market, then the chances of stock market crash or global financial crisis would be high. Let’s look back the past market peaks in years 2000 (before dot com bubble) and 2007 (before subprime crisis), the market crashes always happened after an euphoric stock market with support of bullish global economy.
Feeling is qualitative (correct in principle or direction but not measurable), may not be suitable for stock investing. A better way is to apply a quantitative method of High Probability Investing with Optimism Strategies. Currently over 75% Optimism for US and world stock market, probability of downside (75%) is more than upside (25%). When we play a poker card game with possible numbers between 1-10, when your opponent has card No 7, your chance of winning (from possible No 1-10) is not high as the chance of getting No 8-10 is only 30% (3/10).
Even a player may not know what is exactly the No of next card, one could apply probability over several chances (not having only one chance to win all or lose all), the winning rate would improve accordingly with larger number of trials. This is how most insurance stocks and casino stocks could have rising share prices over longer term, supported by a profitable business with a game of probability, even future is uncertain.
This is the same for investing, even one may not know exactly when a market could reach a peak or crash eventually, if one could master these successful factors of success, high probability investing could be achieved:
1) Diversify over 10 giant stocks with strong business fundamental
2) Buy low optimism stocks aligned to level 1 (stock), level 2 (sector), level 3 (country) and level 4 (world). Sell when optimism is high.
3) Follow market trend in actions of entry and exit
4) Mind control: be fearful when others are greedy, be greedy when others are fearful
5) Money management: allocate fund with unique investing clocks for cash, stock, property, commodity, forex, bond, etc.
Even we may not know exactly when the global stock market may crash (no one could do so unless the person predicts everyday that “today market would crash”), we could understand that the remaining days of bull market are limited, exit strategies are crucial now unless the stocks on hold are defensive growth stocks for long term investing.
Don’t apply “Hope Strategy”, buying a stock and hoping for the best outcome. Use Probability Strategy instead, making the right decisions aligned with high probability factors mentioned above.
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