TAIEX at 43,500 and US Stocks at New Highs: 3 Signals to Survive a Crash

Have you noticed that in the past three months, the friend who never watches the market is now asking which stock to buy? That you can overhear colleagues at the convenience store saying this time is different, AI is the trend, miss it and it’s gone? That in your group chat, no one is talking about risk anymore — everyone’s posting profit screenshots, and even 5% or 10% gains make them feel like stock-market gods?

If you feel this way, listen carefully — what I’m about to say may make you very uncomfortable, even make you want to swipe away. But if you can stay with me for the next 10 minutes, you may finally see what to do with the portfolio in your hands that you can’t bring yourself to sell.

Many people think the most dangerous moment in the market is when everyone is panicking, when the front pages are black, when the experts on TV are arguing. Wrong. The most dangerous moment is right now — the moment you think you don’t need to panic at all.

What your eyes see is the TAIEX at 43,500 and US stocks at new highs. What your heart doesn’t see is three things. Nine out of ten retail investors can’t read these three signals, and the 10% who can are already preparing.

You might say: Here we go again, every time the market goes up someone cries crash. True — no one can pinpoint the top. But today I’m not telling you to go all-in or all-out. I’m telling you to first understand these three warning signs. They aren’t the kind of hindsight-driven useless indicators. They are real signals happening right now, right in front of you.

• Understand one, and you won’t pour your last copper into the very top
• Understand two, and you’ll know whether to add or wait
• Understand three — honestly, you won’t need to watch any financial channel again

1. The Real Script: How Ugly All-In With Margin Gets

Let’s skip the theory and talk consequences.

Imagine the TAIEX is still at 43,500 today. You go all-in on margin with NT$2 million. You tell yourself if it goes up 10% more, I’ll get out. Three months later, the market doesn’t crash — it just corrects 15%. You think 15% isn’t much, right? But you forgot you’re on margin. TAIEX margin gives you roughly 60% buying power, meaning NT$800,000 of your own money borrows NT$1.2 million. A 15% drop means a NT$300,000 paper loss, plus interest. Your equity is below NT$500,000 — a loss of over 35%.

Then the broker calls: Sir, you need to top up the margin. Where’s the cash? You put it all in. So you are forced to sell part of your position at the bottom. After you sell, the market rebounds — but you’re no longer on the train.

That’s the optimistic version. Here’s the real version: From 2000 to 2001, the TAIEX fell from 10,393 to 3,411 — nearly 60%. If you had been all-in on margin, you wouldn’t have survived a 60% drop — you would have been force-liquidated at a 30% to 40% drop. Your equity would be near zero. And the whole thing takes less than a year, not three or five.

Look at your account right now. If the market drops 10% a month for three straight months, what’s left in your account? Can you hold? Even if your finances can, can your mind? Will you sleep? Will you still be present for your kids?

That’s why I say: the most expensive thing at the tail end of a bull market isn’t the stocks — it’s your risk tolerance.

2. Warning Sign #1: Retail Margin Balance at New Highs, but Smart Money Is Leaving

Let me break these three signs down one by one.

The first sign is “retail margin balance at new highs, but smart money is leaving.”

The logic is simple. Margin is borrowed money to buy stocks. Borrowers have very low tolerance for volatility, because it’s not their money. The moment the market hiccups, margin accounts are the first to be force-liquidated. Force liquidation triggers selling pressure. Selling pressure pushes prices lower. More accounts get liquidated. This is the margin-call cascade effect.

You might say: High margin balance doesn’t necessarily mean a drop. True. But ask yourself one question: in a market where margin balance keeps hitting new highs while foreign investors are net sellers day after day, are you going to be the one charging in — or the one pausing to look around?

Here’s the point: this data isn’t about predicting a crash. It’s about telling you how many people are standing in a fragile position. When the market is fragile, you don’t need to be precise. You just need to survive.

3. Warning Sign #2: P/E Ratios Seriously Deviated from Historical Mean, but the Market Says “This Time Is Different”

The second sign is “P/E ratios seriously deviated from the historical mean, but the market tells you this time is different.”

The TAIEX’s long-term historical P/E averages between 15 and 18 — based on decades of TWSE data, no ambiguity. Where is it now? Go check for yourself. I’m not going to tell you the exact multiple that triggers a crash, because nobody knows.

But I’ll tell you a behavioral-economics iron law: when the P/E ratio is significantly above its historical mean, a wave of people will surface to convince you with every “this time is different” story.

• In 2000, the story was the “Internet Revolution”
• In 2008, the story was the “BRICs”
• Now, the stories are the “AI Revolution” and “Taiwan’s Guardian Mountain” (TSMC)

The stories are different every time. The results are always the same.

P/E ratios aren’t used to predict crashes — they’re used to measure your margin of safety. Buying at 20x P/E versus 14x P/E leads to completely different long-term return expectations. This isn’t mysticism. This is what decades of market data tell you.

4. Warning Sign #3: Market Sentiment Extremely Bullish, but Volatility So Low That Risk Is Forgotten

The third sign — and the hardest to spot — is “market sentiment extremely bullish, but the volatility index is so low that risk is forgotten.”

Taiwan has an indicator called the TAIEX options implied volatility. When this number is very low, it means almost everyone in the market believes there won’t be major volatility ahead. Everyone is at ease.

Sounds great, right? Wrong.

The biggest market crashes never happen when everyone is panicking. When people panic, they’ve already built defenses. They’ve sold what they should sell. They’ve avoided what they should avoid. Crashes tend to happen when no one is afraid anymore. When nobody is afraid, everyone is fully invested, everyone is undefended, the moment a black swan flies in, the reaction will be extremely violent.

Before the 2008 financial crisis, the US VIX volatility index sat at long-term lows. The TAIEX fell from 9,859 to 3,955 in less than a year. How many of those who were fully invested at the high held on to the rebound? Very few. They got force-liquidated halfway down.

5. Combining All Three: The High-Risk Warning Package

Put these three together and you have a complete high-risk warning package:

1. Margin balance at new highs + smart money leaving — the market’s internal structure is extremely fragile
2. P/E ratio seriously deviated from history — the margin of safety has disappeared
3. Volatility so low that everyone forgot risk exists — collective psychological defenses have collapsed

You don’t need all three at once to be alarmed. If two appear together, you should seriously ask yourself: is my current position really safe?

The Grocery Market Analogy

Let me use a grocery market scenario to make this click.

Imagine you walk into a market today. You see every stall shouting greens, NT$50 a bunch, with crowds swarming. Everyone’s grabbing. Then you notice a strange phenomenon: the restaurant owners who come at 4 AM every day to stock up are walking out — empty-handed. The ones frantically grabbing vegetables are ordinary people.

What do you think? Will you join the grab — or stop and think?

The restaurant owners are smart money — they know today’s wholesale price is unreasonable, so they choose to wait. The grabbing crowds are ordinary retail investors — they only see if I don’t buy now there’ll be nothing left, without noticing prices have deviated from normal.

Worse, many of these people are buying with borrowed money. They think vegetable prices will keep rising, I’ll borrow a bit, pocket the spread, pay it back. The next day prices drop, and not only do they lose on the vegetables, they owe interest. And because they bought on credit, the seller takes the vegetables straight out of their hands — they don’t even get the chance to wait for prices to rise.

This is what being all-in on margin at a high looks like. You don’t need to understand technical analysis. You just need to understand this grocery-market story to know whether you should be fully invested right now.

6. Cash Flow Is Oxygen, Margin Is Putting Shackles on Your Own Neck

Investing Is Like Planting Trees, Not Gambling

Investing is like planting a tree — you can’t plant it today and harvest it tomorrow. But what many people are doing right now is pouring all next year’s and the year after’s fertilizer in today, then praying for a giant tree tomorrow. That’s not investing. That’s gambling.

Cash Flow Is Oxygen

Many people, at market highs, convert all their cash into stocks, thinking cash just sits there losing value. Then the market drops, and they run out of oxygen. They can’t add to positions. They can’t cover living expenses. They can’t ride it out. The only thing they can do is sell stocks at the bottom to get cash back. That’s not investing. That’s being forced to take the loss.

Margin Is an Invisible Shackle

Margin is you personally putting a shackle around your own neck, then handing the key to the market. The market only needs to twitch slightly, and you’ll be choked breathless.

7. Position Sizing: Lower the Water Level, Regain Control

You might ask: So should I sell everything now? Let me answer directly: selling everything and going all-in are equally extreme. No one can precisely predict the top.

If you clear your position now, and the TAIEX goes up another 5,000 points, can you stand it? Will you chase back in at a higher price? Most people will — that’s human nature. The higher it goes, the more frustrated you feel, the more you think I should have, and in the end you buy back in right at the top.

The right approach has never been all-in or all-out. The right approach is called position sizing. It’s deciding, based on your own risk tolerance, life stage, and capital nature, how much you should be in the market right now.

You might say: But if I don’t buy now, what if it really never comes back? Let me ask you back: does the market really never come back? Is there any bull market in TAIEX history that didn’t end? They all ended. At every ending, there were people standing on the mountaintop who were also sure this time it wouldn’t come back.

The market will always have opportunities. But you only have one principal in this lifetime. You don’t need to be a genius, you don’t need to read every financial report, you don’t need to check the market every day, you don’t even need to know if tomorrow is up or down. You only need to do one thing: lower your current stock position to a level where you can sleep peacefully.

What Does “Sleep Peacefully” Mean?

• Tomorrow the market drops 10% — you feel the pain, but you don’t want to close the app
• Next month the market drops 20% — you still have cash to add, instead of being margin-called
• Six months later the market is still range-bound — you won’t have to dump stocks to pay the mortgage

You don’t need to sell everything today. You just need to open your brokerage app, look at the ratio of your total stock position to your deployable capital, then ask yourself one question: “Does this ratio let me sleep?”

If your answer is I’m a little uneasy, that is your answer. You don’t need to exit completely. You just need to drop one or two levels and regain your sense of control.

8. Two Pictures That Decide Your Fate in Three Years

Picture A: You Did Position Sizing

One day, three years from now, the market has corrected 30% from the high. Because you did position sizing, you still have cash on hand. You add to your position in batches at the lows. Three years later, the market recovers to its prior high. Your assets aren’t just intact — they’re even higher than before. More importantly, you slept well for those three years. You didn’t let the market ruin your work or take out your frustrations on your family.

Picture B: You Were All-In on Margin

Same scenario, three years from now, the market has corrected 30%. Because you were all-in on margin, you got force-liquidated in the first wave down. Your principal is mostly gone. The market later rebounds, but you don’t have any money left in the game. And because of this loss, you spent three years paying off debt. By the time the next bull market arrives, you don’t dare enter again.

The difference between these two pictures isn’t about who’s more accurate. The difference is who survived. In the end, investing isn’t about which trade made you the most money. It’s about how long you stayed in the market. Stay long enough, and compounding works for you. Get forced out, and everything resets to zero.

9. The Core: It’s Not About Money, It’s About Your Options

When we get to the end, we’re not actually talking about money. We’re talking about whether you have options in life.

• When you have enough assets and cash flow, you can choose to do work you love instead of enduring a job for the paycheck
• You can choose to be at home when your child needs you, instead of missing their childhood because you’re afraid to take leave
• You can choose to give your parents the best medical care when they’re sick, instead of saying I’m sorry, I can’t afford it

When your assets get eaten by a market correction, what you lose isn’t numbers. You lose time. You lose freedom. You lose the initiative over your own life.

That’s why I keep emphasizing risk — not because I’m pessimistic, but because I’ve seen too many people, after a bull market ended, lose not just money but the options for the second half of their lives.

You don’t need to be a stock-market god. You just need to be someone the market can’t take out in one wave.

Closing: Do One Thing Today

By now, you may already be feeling something stirring. You may be starting to recall whether you’ve been a little too optimistic lately, starting to realize whether you’ve put in money that shouldn’t have been touched, starting to discover that you actually knew about the risk all along — it’s just that no one dared to tell you the truth.

Let me finish saying the truth then.

What you should do right now isn’t guess whether the market will crash tomorrow, isn’t ask someone else what to buy, isn’t chase the this time is different story.

What you should do right now is stop. Lower your current position to a level where you could go three years without selling and your life wouldn’t be affected. Take that emergency fund out of your stock account and put it somewhere you can access anytime. Mute those channels screaming go all-in.

Sit down and answer one question clearly: “If the market drops 30% starting tomorrow, can I hold?” If your answer has even a flicker of hesitation, you already know what to do today.

So I’ll only ask you to do one thing — after work today, spend 10 minutes opening your brokerage app, list all your holdings, calculate the ratio of your total stock position to your total deployable capital, and write that number down. Stick it next to your computer screen.

Whatever the number is, just remember one thing: that number is your current risk exposure in the market. You don’t need to change it today, but you need to know where you’re standing.

Most retail investors have never even done this step, but starting today, you’re different.

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Disclaimer: This article shares market risk concepts for reference only. It does not constitute investment advice. Investing involves risk. Market volatility cannot be predicted. Past crash patterns do not guarantee future repetition. Please assess your own risk tolerance carefully, and consult a qualified financial advisor where necessary.