Tags: Hulbert | Gabaix | stock | crash

Hulbert: Experts Say Another Stock Crash Will Ultimately Come

Monday, 21 Oct 2013 09:11 AM

By Dan Weil

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Twenty-six years ago — Oct. 19, 1987 — the Dow Jones Industrial Average plunged 22.6 percent.

Could it happen again, asks Mark Hulbert, editor of Hulbert Financial Digest.

A number of experts say yes, he writes in The Wall Street Journal.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

And while stocks rebounded quickly from the 1987 crash, during previous crashes, markets didn't fully recover for more than 10 years on average, according to Xavier Gabaix, a New York University finance professor, Hulbert reports.

To protect against a crash, "you might need to reduce the portion of your portfolio invested in stocks — especially if you have less than a decade in which to recoup your losses or lack the nerves of steel required not to bail out of stocks after a crash," Hulbert writes.

Gabaix and fellow researchers predict that the market will have a 20-percent down day once every 100 years, a 15-percent down day once every 50 years and a 10-percent down day once every 13 years, Hulbert writes.

Gabaix says crashes are inevitable, because the market is dominated by its biggest investors, who at times will all exit the market at once, producing a plunge.

While Hulbert is talking of crashes, the Standard & Poor's 500 Index rose to a record high Friday.

"It was certainly good news that the budget was extended and the government didn't default on its debt," Jack Ablin, chief investment officer at BMO Private Bank, tells Bloomberg.

"Tapering will likely be delayed until at least well into the first quarter. That's largely what's fueling equity prices now."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Related Stories:

Marc Faber: Pray All Asset Classes Don't Collapse at the Same Time

The 'Teflon Bull' Market Powers On, But Is It Truly Unstoppable?

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