Wondering About a Market Crash
Let’s imagine it’s Monday, October 28th,Â and the year is 1929. You’re sitting, eating your breakfast and pretending to be interested in what your spouse is saying. All is normal.
If it really was 1929, the next day [black Tuesday]Â the stock market, and the economy in general, would take a tumble that would last for 25 years!
This time I’m thinking about their value. Google’s value at the moment of their IPO was $23.1 Billion [$85 per share]. Currently Google’s value is $83.5 Billion [$300 per share]. Another way to look at it is; 113 times [years] their current annual earnings. According to our current economic picture that is what Google is worth.
Is it real? Take a look at this chart. If today was the top of that mountain, like in 1929, what would have value tomorrow? Would it be Google’s stock? Things that are real would have value. Food. Probably precious metals. Unlikely that cash would have much value; it is even more unreal than the stock market.
A large part of money management is anticipating and mitigating risk. The next black Tuesday will happen, just like the next earthquake, the question is when. It’s worth it every once and a while to pretend it is tomorrow and see what kind of shape you’d be in.