Why are people so obsessed with the market crashing?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 488.2 million views in recent years.

In the answers below I focused on the following topics and issues:

• Why are people so obsessed with the market crashing?
• What mistakes do new business owners make the most frequently?

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Why are people so obsessed with the market crashing?

It is a very curious thing.

What is especially curious is most people are obsessed with the stock market crashing in a negative way – in other words they are fearful about it and not happy when it happens.

Yet in most other areas of life, we celebrate falls. We are happy when cars, consumer goods and even houses go down as we know the price will eventually recover.

Let’s look at this logically.

From looking at history we know a few things:

1. Even though individual stocks can go down to zero, and some never recover, the entire stock market always recovers, especially if you reinvest dividends. Even the worst performing developed stock market in the last thirty years, the Japanese Nikkei, recovered adjusted for dividends reinvested. Most stock markets, such as the US ones, have hit new highs for well over a century.
2. Nobody can time the stock markets for certain. You might sometimes get beginners lucks, or get it right, but eventually the casino wins. Even people like Warren Buffett have admitted that they can’t time the stock market.
3. Most of the gains for the stock market happen during a few trading days. Take 2020. It was a crazy year. A 50% decline, but the markets were up about 17% for the year. But 100% of that return was due to a handful of great trading days. This graph tells the longer-term story as well

Given that we know that the entire stock market will almost for sure recover long-term, then people should celebrate market falls, assuming they aren’t too old.

A good investor is like a collector. They are collecting units. When was the best times in recent years to buy property?

After the biggest crashes ever. How about stocks? The same.

So, why don’t more people celebrate?

The main reasons are:

1. The media. The media leads with headlines like “investors lose as the S&P500 falls 5% this week”. Investors haven’t lost unless they sell. A decline and lose isn’t the same thing. A better headline would be “great news, stocks are on sale! The long-term investor wins”.
2. Influencers. People like Peter Schiff and Robert Kiyosaki have predicted a market crash every year for twenty years. They will, of course, occasionally be proved right and milk it, but then fail to mention the previously bad predictions they made.
3. It is counterintuitive to be a good investor. Human nature follows the herd, so more people get in during the peaks, and many exit during the declines.
4. Then you have those who understand the evidence. They know market timing hasn’t historically worked. They also know that stock markets have always rebounded, so buying at lower prices is great. What stops these people? Well, they think this time is “unprecedented” . “This time is different”. That is always what people say as this decades old quote says.

1. Then there are those people who understandably are concerned. If you are in retirement, and don’t have an extra income, it DOES make sense to care how long a crash lasts for if you are 80%-100% in stocks. The reason is simple. You are now a net seller of stocks, as you need to sell a small amount every year to fund retirement, unlike the net buyers (young and middle-aged people) who should celebrate the falls. The best way to deal with this is to be diversified. Being 50% in stocks and 50% in non stocks makes more sense in retirement than being all in.

The best thing to do is be agnostic about market crashes and falls, or celebrate them.

What mistakes do new business owners make the most frequently?

A few days ago, one of my team reached out to a tax-advisor who specializes in helping expats, due to a client request.

The person was referred to me and suggested, so I passed on the contact. Despite the fact that he sent him a WhatsApp message and email, there has been no response.

One or two years ago, I was looking at creating a client event. Again, somebody was suggested to me, and there was no response.

At first I thought the email went to junk, so I followed up in ways that were harder to ignore via LinkedIn or WhatsApp.

Again no response. It is unbelievable how many firms turn away business that is knocking on the door.

More often than not, they get busy with existing work and forget, but if you are growing a business, this is a rooky mistake.

Anybody I have even known who has done incredibly well in business, or even just inside the top 5% in an industry, cares a lot about money in, and money out.

Sounds so simple, but it is true. Emails, many pointless meetings and much else can wait. Saving money, and gaining it, shouldn’t.

These two quotes says it all:

If you do the basics right, every single day, you can beat most people in business, even if you aren’t incredibly smart or have anything else special about you and the business.

This is especially the case with established businesses. It is human nature to take your foot off the peddle once you are comfortable or successful.

The very best tend to keep working harder and/or smarter (via outsourcing or delegating and so on), rather than getting complacent.

Even new businesses, however, make the mistake of thinking that grand ideas and plans beat simply getting the basics right.

Beyond that, the biggest mistakes I have seen are:

1. Focusing on the idea and not execution (that is a follow up to the above).
2. Just working hard, and not focusing and working smart as well
3. Not understanding how to manage cashflow.
4. Preferring to start businesses in areas where no expertise and work experience is on display, rather than getting a job first and then starting your own venture.
5. Either taking silly, reckless risks, or not taking enough.

Ultimately, 80%+ of new businesses fail, and there are some commonalities which can account for those failures.

The failure rate goes down for people who have five or ten years experience in the industry, and for those that keep fixed costs low.