rashes trustnet . com y easy to knee-jerk sell up when prices falling . hould take a nd assess the situation ”
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jerk reaction and sell up when you see share prices falling . Instead , you should take a deep breath and assess the long-term situation .” While Sanford DeLand ’ s chief analyst Eric Burns broadly agrees with this sentiment , he points out that it assumes you were sensibly invested going into the sell-off .
Horses for courses
Edwards says that because no crash is the same , the way you should approach each one will depend on what caused it – whether this is the hype and extreme valuations of the late 1990s , structural issues as in 2008 , or the external supply-side shock of 2020 .
“ You also need to consider the starting point for valuations , risk-free rates and equity risk premiums , along with margins , balance sheets and recent supply-side investment ,” he says .
Hornby says the major fear after a market crash is deflation , which can lead to a depression .
“ In a depression , the problem is that all business costs are effectively fixed and if the prices fall , the equity value of companies can quickly become small or go negative ,” he explains .
He admits this is less of a problem in an era when central banks are willing to pump money into the system at the first sign of trouble , before adding that the market will always fear a collapse in demand . However , there are clues that will tell you deflation is unlikely to be a problem .
“ The things we would look at would be what ’ s happening to the copper price , what ’ s happening to the corporate bond spread , and what ’ s happening to inflation expectations ,” he says . “ That ' s your checklist .”
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