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Every single time the stock market has a wobble, my phone starts ringing. Look, 15 years I've been doing this, 15 years I spent as a financial adviser, and the calls that I get always sound the same. They always say the same thing. Should I get out? Is this the big one? It's all going to zero. And every time I have to bite my tongue a little bit because the honest answer is and what I want to say to everybody is is it's not.
And I quietly hope that it actually gets worse. Look, not like a disaster, right? Like not a 2008 style disaster. I'm not hoping anyone loses their jobs or their home, but a proper healthy fall in the share price valuations. I at this point would welcome it. And by the end of this video, I think you'll understand why a crash could honestly be the best thing that happens to a certain kind of investor.
And there's a good chance that that investor is you. To see why, let's start with something that sounds so so so so obvious, but almost nobody actually believes it when it actually matters. Okay? The price that you pay decides the return on your money. That is the only thing that matters when it comes to investing in the stock market.
Pretty much look, excuse me. Picture, [clears throat] say you've got an apple tree, right? Every single year it produces £10 worth of apples. Okay? Nothing fancy. It just keeps doing that year in and year out. If I buy that tree for 100, my apples pay me 10% a year. It's a 10% return on the money, right?
Pretty simple maths. Now, if I was to pay £200 for exactly the same tree, I get the same £10 apples, right? But now my return on my capital deployed is only 5%. And if everyone panics and I can buy that tree for 50 quid, same tree, same apples, I'm going to be earning 20% on my money. The tree didn't change.
Only the like price that I paid for it did. And the price decided whether that was a kind of brilliant purchase or pretty much a mediocre one. That's all a share or a stock is. It's a slice of a business that produces profits and those profits are your apples pretty much. When the price falls, but the underlying business is still fine and the market is still relatively okay, you are buying the same apples, that same current and future profit and growth of a business for less, right?
And now here's where it gets interesting. Most people also don't invest all at once, do they? More often than not, people are investing every single month into their pension or an ISA or a general investment account or whatever it is. And if that's you, let's take a look at what a fall in the stock market or asset prices actually looks like.
So, let's say two people each put in 100 a month for three months. Okay? The first person, the price stays exactly at £1 every single month. So they buy 100 units, let's call them, then another 100, then another 100. So that is 300 units worth £300. Okay, nice and simple so far. So the second person, let's say that the price goes to £1 and then crashes to 50p and then recovers to a pound.
So month one, they'll get 100 units, right? Same sort of thing. But month two, the same 100 now buys 200 units because it's 50p a unit, right? Because everything's half price. And then month three, let's say it goes back up to the pound and it's 100 units again. That is 400 units and at£1 each they're now worth 400 quid, right?
same price, same starting price, same ending price, same money in, but the person who lived through the supposed crash at this point came out a third better off. That crash didn't cost them anything. It actually paid them in this instance. Look, in March 2020, I had a client in his kind of mid30s who he wasn't alone in this, by the way, but he rang me genuinely shaken obviously with what was all was going on in the market and in the country and all that sort of stuff, right?
Um he was paying a few hundred pounds a month into his pension at the time. Um and he'd basically watched it drop by about a quarter in two weeks, right? And he was really stressing, really panicking. I had the same conversation with lots of people around this point for obvious reasons. The market was tanking.
The world was weird. But in to calm him down a little bit, I asked him one simple question, right? Remember this was money that was in his pension. I was like, "When are you planning on taking the money out of this pension?" Remember, he was about 30 odd, right? Well, he said, "Well, obviously it's in my pension, so not for about 25 years." So I then said, well then every pound you pay in for the next few months is buying more in terms of those units, in terms of those slices than it has done for years, right?
This isn't the bad part of your investing life. This is the part that in uh in the end you will be grateful for, right? He he didn't believe me at the time and he was just panicking and stressing about it all. I even begged him to put more capital in over and above it because I was like, "Look, you're just buying at cheaper prices." But he didn't believe me at the time.
But when we look back at it in hindsight, when we have sessions together now, he definitely gets it and he definitely understands the advantage in accumulation of a stock market correction. Okay. So the question then is is if a stock market crash in that specific scenario is pretty good, who should actually fear a stock market crash?
because obviously it's not great for everybody, right? Well, the truth is is that it's pretty much only kind of one group of people who really need to be concerned about a stock market crash. It's the people who need to sell in the very very near future. Right? If you're retiring next year and your whole fund is in the stock market, well, yeah, a crash is a real problem, right?
or if you need to end cash or you want to buy a car with your money or a new house or whatever it is, then yeah, a crash is a real problem because essentially you are then forced to sell. You're forced to sell your trees, right, with the the analogy at the start at the worst possible price. But if you're a buyer in the next for the next 5 10 15 years, high prices, right, and and an everinccreasingly high stock market, that's not particularly good news, right?
You it just kind of looks like it on your statement, but buying high valuations consistently is not necessarily a good thing. Which brings us to the next obvious question, or it should be obvious. If a crash would be such good news for so many of us in accumulation, is one of them actually coming? Because there might be a reason why I'm saying all this.
Okay. Well, look, I'll be straight with you here. I've got no idea. And I don't know, and nobody else does does either. Okay. In 15 years of doing this, I've heard a crash confidently predicted pretty much every single year that I've been doing this. There's always a reason that you can pinpoint a stock market crash or some sort of economic disaster.
Occasionally, of course, someone gets it right and they get famous and then everyone forgets about the 20 times that they were wrong before that. That Michael Barry guy, I think his name is, um, who predicted the 2008 crash. like yeah sure you were right that one time but you've been right 50 you've been wrong 50 other times after that.
So um and the next the most important part about that is I've seen what trying to time the market and time these crashes costs. Okay, so years ago, another client of mine, um, he was a really sharp guy, super successful businessman at the time, he moved everything into cash and I absolutely begged him not to.
Absolutely begged him not to. I was like, you can fire me if it actually does, you know, he just he he wasn't interested and he was just like, I want to move everything to cash because he was certain based on what he'd heard and what he'd read that the market was overdue for a fall. And do you know what?
He was right. A fall did come, right? It just came years years years later. And it was years later after the market had climbed so far that even at the bottom of that respective crash, the prices were so much higher than where he sold originally. So he was right about the crash, but he lost money simply just waiting for it.
Right? So, look, I'm not sitting here predicting anything, but I can tell you why prices feel a little bit overstretched right now. And I would say this whole video, this is probably the most genuinely useful bit, right? So, back to that apple tree. Okay, owning an apple tree in this scenario is a risk, right?
You've got bad harvests, you've got disease, you got storms, weather, whatever, right? Your other option instead of owning trees is to basically have your money in a savings account, okay? Where your money is essentially safe. It depends on your definition of safe, but ultimately a pound is always going to be a pound in your bank account unless your bank goes bust, but don't worry about that.
That's not what we're talking about. So naturally, you would want to, if you're going to move your money from a bank account and buy a tree, you'd want that tree to be an attractive proposition and certainly more than what you can get just by keeping your money safe in the bank. Otherwise, why the hell would you even bother, right?
And I think that's a very, very valid thing to ask and say. That extra reward for taking the risk and buying the tree has a name. It's called the risk premium. You just got to think of it as kind of like danger money, right? Over the long run, shares have paid a healthy amount of danger money over and above cash in the bank.
But right now, two things have happened at once. Share prices have climbed a lot. The stock market has just gone up and up and up. So, you're paying more for every single tree, right? and the safe savings, the stuff in the banks that you can get are actually paying a pretty decent interest rate. Again, squeeze those two together and the danger money has got a little bit thin.
Okay? So, you're taking the full risk for currently a slightly smaller than usual reward. That doesn't mean at all that a crash is coming. This is not what I'm saying at all. And trust me, this is not what I'm saying here. Prices can stay high for years and years and years and years. And it has done, right?
I remember people saying 2019 and 2020 that the prices were overvalued in the stock market. The USA has been theoretically overvalued for 10 years almost, right? These prices can stay up so much longer than you are sort of waiting for, especially if company profits keep growing and earnings keep growing and all that sort of stuff.
That's what's going on at the moment. But what it does mean is that from today's prices, the return that you can reasonably expect over the next decade are probably a little bit lower than people have gotten used to, right? Okay. Expensive trees mean lower yield on those apples. Just remember that. Okay.
the price that you pay. If this is where your future return is, if you pay this much for something, this is the return you're going to get. If you pay this much for something, you're going to get a lot of return. If you pay this much for something, you're going to get negative returns. Okay? So, we can kind of predict this bit.
It's about what you pay for it. That's the absolute key point. And that is 100% why I'm hoping for not a crash, a correction, right? not a catastrophe, a correction of the kind of normal boring kind of fall, right? 10, 15, maybe 20%, the sort of most recent while in living memory is probably 2023, something like that or early 25 maybe qualified for those as well.
They happen far more often than people actually realize and people aren't up in arms about it every single day. A drop of 10% or more comes along roughly every year or two. Okay, that is not a sign that something's broken, that the stock market's going to go to zero. It's just the market kind of resetting price, a little bit of like mean reversion going on in all of this.
Think about it like a kind of farmer hoping for rain, right? He doesn't want a flood. He doesn't want it all to be washed away. He just knows that without the occasional downpour, nothing grows, right? You're not nurturing it. You can't get anything at decent value. So, if nobody can predict the rain, but we know it does come eventually, you might be thinking, "All right, all of that's very, very good, but what the hell do I do about it?" Okay, and what am I certainly going to be doing about it?
Well, it comes down to four main things, and each one of them kind of builds on the last. So it's really really important to keep going through this one by one. So the first is time. Okay, a crash is only a sale if you're not forced to sell during the draw down. Okay, so money that you're going to need for the next few years or so really shouldn't be in the stock market at all.
Okay, in the UK, what I typically do with clients maybe is keep an emergency fund in an instant access savings account. And for anyone already taking an income from retirement or something like that, we'd hold maybe one, two, or even three years of spending in a cash in a cash account or certainly a lower risk fund in order to have that bucketed approach.
So they never have to sell trees in the middle of the storm essentially. Everything that you don't have to touch for 10 years or more, that's the money that gets to enjoy the crash. Essentially, if you can leave that money alone, all you should be thinking of is, "Oh, great. I get to buy more at a cheaper price." Okay?
But time on its own isn't enough. Okay? Waiting only pays off if the thing that you own actually recovers. Okay? Remember, a sale means getting the same thing with the same value for less. And that only works if you're confident that it's still producing apples in year 10. Essentially, for most people, what we're referring to here is investing in something with essentially a positive expectancy.
Things that will typically go do go up over time. In this case, we're looking at something like a market cap weighted global index fund. It's just one fund that owns a small slice of thousands of companies from around the world. And I would say this is the most important part that people don't really think about that often.
An index fund, a market capitalization weighted index fund. It's actually a momentum fund, right? An index fund quietly cleans itself and rotates over time. Okay? So when a company shrinks and falls or doesn't perform well, it drops out of the index and gets sort of basically replaced by whatever's growing and coming up behind it.
It's a all basically a momentum mechanism. So you're not holding a collection of like five to 10 individual stocks that you think is great but actually might die. You're holding whichever companies are currently winning constantly updated in a market cap weighted index. That's why after every crash so far, famous last words might not happen.
Nothing's guaranteed in this world. The global stock market has always come back. Not always quickly, sure, but it has always come back over time. And that is exactly why the third thing matters. Because the opposite approach is where I've seen real money lost. And I guarantee you, if you watch any YouTube content about investing in individual stocks, you've definitely seen this as well.
Okay? People will hear buy the dip and they'll go hunting for whichever single company has like dropped the most or the one that they want is at like great value cuz it's dropped by 50% or whatever it is, right? You will have heard buy the dip so so so many times. I'm sure I once had a client buy um a well-known retailer.
let's just say I was a high street re retailer um and the shares h [snorts] haveved they dropped by 50%. Okay. It was absolutely crazy. And I remember him literally during one of our meetings. Uh he he used to play around with shares and I haven't got any adversion to clients doing that, right? But he he was in this mode.
He was like, "Oh, I really like this company. The shares have harved. It's cheap now. It's cheap as chips now." Right? That's what he told me at the time. Right? They harved again and the company went completely bust. Okay? That is the trap. When one company's share price falls, just one individual company, not the overall stock market, it's often because the apples on the tree are rotting, right?
The profits themselves that the company are making are disappearing. That is not a sale. That's price catching up with the truth. With one company, you actually rarely know which it is. Essentially with the whole world's market, you know, the orchard is always going to still be producing. It has positive expectancy over time.
You don't have to make a decision. That's the difference between buying in a sale when the global stock market is down 20% with a positive expectancy moving forward and catching a falling knife. I love that phrase cuz my god is it true. and everybody everybody at some point gets into that trap. So once you've got time and you're owning the whole orchard rather than just a single tree, the last piece is easy to say, hard to do.
I would say just keep buying and just buy more essentially. Set up your regular payment every single month of what you need to grow and what you need to project and just leave it alone. Okay? If a dip comes, just keep going. In fact, beg, steal, and borrow any cash that you can get to invest in productive assets at a discount.
If you got spare cash, just add it in. Chuck it in. Okay? Obviously, with stuff that you can afford to leave for for 5 to 10 years or more, but that is your sale. Okay? Not individual stocks, the stock market. Um, and here's probably the most useful thing that I can tell you, okay? Make the decision about what you're going to do today while you're calm, while the market isn't crashing.
Write down your essentially process. I am probably too anal with all of this. But I literally have like a playbook that says, okay, if markets are X amount from all-time highs, I will do this. If they are this, this, this, and this, and this. So, obviously, you don't need to go to the same extent that I do.
Um, but I have a playbook that I have agreed with myself during good times. It's like going to the supermarket when you're hungry, right? Never do that. It's the same sort of thing. So, write down like if the market falls 20%, I'm going to keep my payments going in and add an extra50 a month or something, right?
What whatever it is. Because after 15 years of all of those phone calls that I've had, I can tell you that nobody makes good decisions while watching their pension pool on the screen. Okay? Nobody makes good decisions while their investments are falling off a cliff. Okay? The people who do well in a crash, they're not inherently braver than everyone else.
They just decided beforehand what they were going to do and they remove the emotion from it. That is all you need to do. Which brings me all the way back to where we started. Okay. And the thing that it took me I would say quite a few years to properly understand. All right. Most people check their investments hoping the number goes up.
But if you're still buying, and most of us are, right, for decades, what you actually want is the opposite. Okay? low prices while you're buying, high prices when you're finally selling. Buy low, sell high. It is 101, right? It's not big. It's not smart. But my god, it works. Okay? A crash only feels like a loss because we stare at the value of those trees, right, on an account that doesn't mean anything yet.
But if you're not selling the trees, you're just collecting the apples and you're buying more trees every single month. So, no, I'm not predicting a market crash, okay? But if one comes, I won't be on the phone asking whether to get out or not. I'll be quietly buying apples and gobbling them up at apple trees at a discounted rate.
And after this, I hope you will, too. Now, keeping the monthly payments going and keeping it going is kind kind of the easy bit, right? But the key question that I get asked probably more often than not is what about a lump sum sitting in cash? Okay, do you wait for a crash to get that discount to buy your trees cheap?
Easy for me to say, or do you just put it in now? Right? A lot of people will have different opinions on this and the psychological reasoning, right? This is really, really super important. So, what I think you should do is watch this video here next because drip feeding drip feeding it in loses more often than not.
Okay? So, fortune favors the brave. Give it a click. I'll see you'll see what I mean. and I'll see you
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