Financial Post: The Storm is Coming and Investors Need a Financial Ark to See Them Through
Article by Larry Sarbit in Financial Post
In the fall of 1987, while preparing to embark on a new phase of my career, my wife and I took an extended, month-long vacation. The timing was just dumb luck.
While I was off, on Oct. 19, 1987, the Dow Jones Industrial Average crashed, cutting the value of that index by an incredible 22.6 per cent in a single trading session. To put that in perspective, on Oct. 28, 1929 — generally considered the beginning of the Great Depression — the decline had been a paltry 12.8 per cent. Most investors, myself included, didn’t see the 1987 collapse coming. But I remember how absolutely terrifying it was for anyone who managed money or invested in the stock market, with many wondering if a new depression was at hand.
The truth is that no one knows the timing of events such as these. But we know they happen every few decades. Most important, I think they are likely to happen again and again.
These days, we face many challenges in the investment field. An inverted yield curve, numerous indicators of a slowing economy, tariff wars, geopolitical tensions associated with Iran, etc.
I’m not an economist but it is hard to ignore these factors, especially in the face of a very expensive market. The Shiller P/E Ratio, which compares current stock prices to a 10-year average of inflation-adjusted earnings, now sits at 30, about the same as it was at the market top in 1929. So is it any wonder we are worried?
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