Do you know of any magic indicator that can always successfully point out the next market crash?
If not, does that mean that all these economic indicators are useless? Well, we don’t think so. People are simply using these indicators wrongly. Watch this video to find out more.
Hello everyone. Thank you very much for watching this video.
We hope that through this way, we will be able to share some of our thinking and hopefully leave some food for thought and make small impact to your financial and non-financial life.
Today I’m going to talk about investment.
Some time back, I wrote an article about the yield curve and it was published on The Sunday Times.
You see in March, the yield curve inverted for five days.
What is a yield curve? What is an inversion of the yield curve?
Now, don’t be too worried about it.
Simply put, a yield curve is a tool used by many market analysts to predict whether a recession is coming and whether there’s going to be a market crash. If the yield curve inverts, well, it may suggest that a recession is coming and a crash is coming
But is the yield curve a reliable tool?
So, we went back to history, and we look at the data between 1976 to 2018, almost 40 years of data. And we found out that over the last 40 years, the yield curve inverted eight times. But only three out of these eight times, within two years of the yield curve inverting, the market actually crashed.
So, the yield curve is actually not a very reliable tool to use, to predict where the marketing is going. In fact, you can use many tools. It is just very difficult to guess where the market is going.
And you know what, you don’t have to do so. Because score of evidence tells us that regardless of short term fluctuation, regardless of crisis, geopolitical situation, in the long term, the stock market always goes up.
The stock market always goes up
But does that mean that all economic indicators, all these tools, they are useless?
Of course not, they are useful. However, I think many people use these tools wrongly. These tools should not affect our long-term investment decision. These tools help us to make preparation for our short-term personal finance decision.
If you think that a recession is coming, perhaps what you should do, well, you should strengthen your financial position. Perhaps it’s a bad time to change your job. It’s a bad time to take up a loan. Perhaps it’s a good time to stash away some cash and just in case the market comes down, you can actually put your money in.
So do not make long term decisions based on short term information.
If you find this to be interesting, you can always click the link and read more about it in the article that I wrote here: https://www.providend.com/dont-make-long-term-decisions-based-on-short-term-information/