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Question: Where people invest during stock market crash (USA Q4 2018 crash)?

Assumptions:

  • When viewing S&P500 as a proxy to the USA market we can observe that it loses market cap (and price respectively)
  • Also, investments AREN'T moving into 'safe heaven' 3-Month Treasury Bills
    (based on the assumption that currently it's interest rate rises because investors prefer other means of investing)

S&P 500 price

Sources:
- S&P 500 price
- S&P 500 market cap
- 3-month Treasury Bills

This question isn't financial advice, just a way to learn/discuss economics/finances.

UPD: I've changed the question because original version has no sense, so you may find some strange conversations.

closed as too broad by NL - Apologize to Monica, Dheer, JTP - Apologise to Monica Dec 25 '18 at 12:50

Please edit the question to limit it to a specific problem with enough detail to identify an adequate answer. Avoid asking multiple distinct questions at once. See the How to Ask page for help clarifying this question. If this question can be reworded to fit the rules in the help center, please edit the question.

  • Lost value is just lost value, it's not movement of money. Today someone is willing to pay $500 for one of your rare tulip bulbs, tomorrow you can only sell them for $10. The value of your market cap dropped, but no money changed hands outside of the individual purchases. – Hart CO Dec 24 '18 at 19:56
  • Yeah, my question is incorrect, I see it now, so instead i should ask where do people invest after stock market crash, aren't I ? – Artem Bernatskyi Dec 24 '18 at 20:19
  • At least for today, Dec 24, most folks are just leaving their money right where it is The NASDAQ only traded 1,724,366,735 shares today, which is quite low. Last Friday 7,609,010,000 shares traded hands. The fact that the price or the market cap changed by a lot doesn't necessarily mean that a lot of money is moving around right now, though they may certainly change in the near future. – Charles E. Grant Dec 24 '18 at 21:07
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    This might be stating the obvious but you do know that every transaction has a buyer and a seller, right? In order for someone to take money out of the S&P500 (say the SPY ETF) they would have to sell to a buyer... The stock market is not a supermarket, the NYSE doesn't set prices and sell stock. And looking back over the historical charts, the best place to invest after the crash was the market. – quid Dec 24 '18 at 21:56
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    That was hardly a crash, simply a correction for overestimated growth. – Mast Dec 25 '18 at 11:35
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There is no money, and it doesn’t go anywhere. A company’s market cap is just the market’s opinion of what it’s worth. That opinion changes all the time, but no actual money is involved. Money only comes into it when shares (or derivatives) are actually bought and sold.

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    @ArtemBernatskyi The S&P 500 is just an aggregate of individual stocks, where the individual companies that comprise it go, so it goes. – Hart CO Dec 24 '18 at 20:00
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    If your house is worth $300k and the real estate market collapses and your house is now worth $250k, where did $50k of cash go to? It didn't go anywhere because there was no $50k of cash involved. The market value of your simply changed (dropped $50k). Stocks are the same. Last week Facebook was trading at $145. Today it's $125. Its market value changed. Anyone who sold it during that period received money. Even if they took that money out of the market and put it in a bank, the buyer put the money back into the market. The market doesn't create money. – Bob Baerker Dec 24 '18 at 20:12
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    This is a bear market not a crash. For the latter, see 1929 or 1987. People put their money anywhere they want: Cash or MM account, banks, bonds, bond ETFs, Treasuries, preferred stocks, mattresses (?). – Bob Baerker Dec 24 '18 at 21:03
  • @BobBaerker thx, I've updated the question, if you think it's too broad feel free to close it.Question originated because a lot of experts are calling this not a recession (they are telling us that we will go in the bull market for a 0.5 - year and then there will be a recession). BUT how can they tell so if they base their assumptions on the previous data (during which there were no quantitative easing implemented in USA comparable to now)? – Artem Bernatskyi Dec 24 '18 at 21:58
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    Stock market "experts" on the news are right less than the weather people. – quid Dec 24 '18 at 21:59
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The price of U.S. Treasury securities are up in the past month. Gold is up and the Yen is up. The Swiss Franc is not completely at a one month high.

There have been ETF inflows into a Treasury fund that has a duration of about 1.9 years. But it appears that an investor could outperform the income of that fund with a three-month bill in their own Treasury Direct account. However, there is gain in the securities price of the longer term duration.

There have also been ETF inflows into emerging-markets but ETF outflows out of high-yield debt. So I don't agree with the inflows into emerging-markets.

Even six-month non-government bond funds are down in the past month.

But investors that outperform the market over long term periods basically buy what is down as long as there is no bad news specific to the stock or bond being bought.

  • All true. Welcome4 new user. – Fattie Dec 25 '18 at 0:46
  • And Merry Christmas! :) – Fattie Dec 25 '18 at 0:46
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Other answers list some excellent investment options.

One choice, both obvious and counter-intuitive, depending on how you approach it, is to invest (or continue investing) in stocks. S&P 500 index fund shares are about 20% cheaper now than they were 3 months ago. This is a great time to buy!

Of course, there is no "one size fits all" answer to this question. Time horizon and risk tolerance, among other things, affect your choices greatly. But there is one important thing to keep in mind: what matters is how high your investments are valued at the time when you decide to sell them. Until then, the lower they are valued, the more you can buy.

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You are wrong on your assumption about T-bills. These are considered a safe haven asset. Getting 2.27% is better than zero or negative. Also they are liquid so you can always get out easily. A long only portfolio manager has a relative benchmark he is trying to beat. So with the S&P heading south, cash is king.

Typically, a couple of the following will be happening:

1) Raising cash (if already owning stocks). I.e. selling stock and putting the money into a money market fund. If have cash, put in money market fund.

2) Selling calls against the position. This partially offsets the loss from the stock going down.

3) A long only portfolio manager who can't use derivatives would do #1 and has a list of stocks that he/she likes with price entry points. If the stock reaches that point then they will buy some. Right now things keep going down and so there is little incentive to buy if you can buy it tomorrow at a lower price. For example AAPL might be too expensive at 210 based upon p/e, dividend yield, but at 170 it might be a buy.

4) A long/short portfolio manager is currently worried that his long short trade is working and most likely is reducing risk if risk is based upon volatility.

5) A long only manager who is required to be at least xx% invested most likely would move to what is considered defensive plays and out of aggressive plays (i.e. shift from high beta stocks to low beta stocks such as tech to big pharma/utilities). He would also move out of more speculative plays into more slow and steady wins the race types.

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