February 1, 2015 by Liberty
Whoaa?!? Everyone better watch out. I just heard a libertarian commentator say that the big collapse is coming in 2015! That absolutely must be true, right? I mean, this same guy predicted a collapse in 2014, 2013, 2012, and well, 2011, and 2010. He’s been right in the past but it’s kind of like a medium talking to a dead relative whose name starts with bo… or no, no, jo, or no no… Of course, eventually, he’s going to be right.
I may be making fun of this commentator but in reality, this guy is someone I respect greatly. He just has the unfortunate habit of putting dates on everyone of his predictions. He’s in the business of selling and, quite frankly, buy now to protect yourself in the future some time from now doesn’t sell as well as buy now to protect yourself from this collapse this year.
Even after tackling this topic a few times, I still get people asking me my opinion about an economic collapse. I have a bit of a history in the market. I remember realizing this simple fact about the market early on. If someone says they can time the market, ignore them.
I feel pretty confident in saying that no one can time the market. I feel completely confident in saying, if anyone can time the market, they sure as hell wouldn’t tell me about it. Of course, if someone did tell someone else how to time the market, they would be interrupting their own ability to time the market.
Putting a timeline on an economic collapse is just a really complicated form of trying to time the markets.
There are too many factors to practically predict collapses. It requires the understanding of hundreds of millions of financial transactions. Even if something big happens like the collapse of a single industry, it doesn’t mean a total collapse is inevitable. It just means more uncertainty to what’s going to happen.
More importantly, what’s actually going to cause the crash is likely to be completely under the radar of what we consider practical possibilities today (but, of course, in hindsight everyone is going to say it was inevitable.)
There is an old story I heard repeatedly from Harry Browne. Harry Browne wrote a book on gold and market collapse decades ago. Within a few years of his book getting published, the collapse took place. He spoke about it decades later. When asked how he predicted the collapse so accurately, he said, I got lucky. If he got published a few years earlier or later (like tons of other authors on the same subject) he would have never got noticed at all.
What To Do In A World You Can’t Time
First of all, what would be the logical thing to do if you could predict the exact timing of the collapse. In most cases, it would be to invest as much money as possible in the markets to get as high a return as possible. Then, right before the collapse, sell those positions and invest it in gold or other sure things in a collapse.
When you can’t predict the timing of a collapse, you need to approach the problem of dealing with that collapse a little differently.
There is one, all to common, attempt to solve this problem that I see from libertarians. A certain segment of libertarians put most of their savings in gold. That means, if there is a collapse, they’ll make a ton of money. That comes with a major risk though. First of all, you better hope gold doesn’t have any problems. Second, until the problems strike, your money isn’t likely to do much. While I’d bet this is safer than all of your money being in the market, there are much better options.
Gold’s price doesn’t grow as predictably as the stock market. Gold doesn’t produce an income. Stocks (partial ownership of a company,) does produce an income. If you’re passing up on stock investing then you’re passing up on a significantly higher return.
The solution that most financial advisors come to is diversification. This is a really simple way to idiot-proof your portfolio from any problems. Harry Browne’s Permanent Portfolio might interest you if that’s what you’re looking for.
There is one more method I feel that’s worth mentioning. By using stock options as an insurance policy on your stock investments, it’s possible to protect the vast majority of your money while investing in stocks. This is definitely not for the average joe but it can produce a relatively safe income. (See My Article “How To Profit From The Bubble Without Risking The Pop”)
Is Never Soon Enough?
People often take articles questioning the timing of a market collapse as a sign that it’s safe to expect the markets to not go crazy. The fact that I said predicting a collapse in 2015 is crazy, looks the same as, a collapse in 2015 is unlikely. It’s not.
There is a natural urge to want to go to the extremes on this topic. I’m not saying the market is safe (not that the market ever is.) Year after year the government destroys any semblance of certainty with it’s unprecedented behavior. Sure, it looks really bad from a historical perspective but it’s been looking bad for 30 years.
Panic talk is useful for one thing though. It helps motivate you to do something. Is your portfolio completely prepared for whatever happens (to the best of your ability)? If you’re like most people, it’s not. Me saying, it’s been looking bad for 30 years can be comforting to you if you’re not prepared but you need to face reality. 24 hours before the big crash, no one is going to know the big crash is coming. Hell, seconds before it, no one will see it coming. This is not something you can put off another day. Prepare.
The fact that you can’t time a collapse just means you need to be ready for it now instead of later. (I think that’s the worst part about these yearly collapse predictions. They teach people to believe that they’ll have advance notice when it’s actually coming. They won’t.)
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