Is a Historic Market Crash Coming?

Think Robert Kiyosaki and the book 'Rich Dad, Poor Dad' comes to mind.

My introduction to the book happened at a humble roadside stall, mere days after I'd landed in the bustling chaos of Mumbai.

To be honest, I wouldn't say that I was blown away by the book. But it did leave a good impression on me.

The book has done a great job in helping understand the importance of asset building, business ownership, and above all, long term wealth creation.

Why am I suddenly talking about Robert Kiyosaki though? Has he come out with another international best seller? Well, this time he hasn't come out with a bestseller but with a bold prediction.

Yes, that's correct. He is of the view that we may be at the doorstep of the biggest crash in history.

Here's him (Source: x.com)

• THE EVERYTHING BUBBLE is bursting. I am afraid this crash may be the biggest in history.
  
  Germany, Japan, and America have been the engines up to now.
  
  Unfortunately our incompetent leaders led us into a trap....giant crash.
  
  I wrote about this crash in my book RICH DAD's PROPHECY.
  
  This crash is going to be bigger than the 1929 Crash.... A crash that led to the Great Depression.

Hmm... although I agree that the macro uncertainty is the highest it has been in recent years, it is difficult to tell whether it will result in the biggest crash in history.

And even if it does, its timing is impossible to predict.

Well, the single biggest source of this uncertainty is President Trump and the tariff volleys that he has hurled at us ever since his appointment.

Trump wants to make it difficult for goods produced in countries like China, Mexico and India to be sold in the US and instead, wants to enhance the local US production.

This is easier said than done though.

On the one hand, while greater tariffs will increase the cost of goods entering the US market and could thus stoke inflation fears, there is also the risk of other countries retaliating to Trump's overtures, thus leading to a possibly chaotic situation.

In fact, this uncertainty has already led to a lot of wealth destruction globally, with the US alone erasing a whopping US$ 4 trillion worth of shareholder wealth.

Perhaps Mr Kiyosaki is extrapolating this very crash to a size that will place it amongst the worst in history.

To be honest, the events of the past few weeks have gotten me worried as well.

For we can calculate the motion of starts but calculating people's madness and their fears, are beyond any of us.

Having said that, this is not the first time that the global as well as the Indian economy has faced a crisis like this, and this won't be the last either.

Hark your minds back to the previous crises of a similar or a bigger magnitude and there's one clear takeaway. The best companies across the world as well as in India, would be setting new profit records 10 years from now.

Yes, that's true.

Companies in weak fundamental position or leveraged balance sheets may certainly find the going tough or may even perish. However, there's little reason to worry about companies in strong competitive positions and rock-solid fundamentals.

As a matter of fact, a substantial fall in the stock prices of these companies would be a reason to rejoice rather than fear.

Hence, we do not know for sure whether Mr Kiyosaki's prophecy will come true or not.

Even if it does, I would like to think of it not as the biggest crash in history but rather one of the best buying opportunities of our lives.

So, keep some powder dry if you haven't already and stick to your stock picking philosophy.

As long as you are buying fundamentally strong companies at attractive valuations, you should be ok over the long term.

Yes, your portfolio could suffer disturbing declines from time to time, but you will most certainly end up with very good long-term returns.

So, ignore the macro and focus on individual stocks and their valuations.

Happy Investing.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)