So where to now?
With markets in turmoil, where do you look for good news?
That I can not tell you as every media outlet worth their salt is pouring fire on the collapse in the stock exchanges worldwide. A truly global stock market collapse – this is the first time that this could be true for the international economy. Even radio stations that focus on music are expelling their own form of investment advice? What next, 702 bringing in Lionel Ritchie? Wait… that is happening? The thot plickens.
We have all discussed the Sub-prime implosion in the USA for the last year and more, I am not going to re-cap this. Who could have predicted that Fannie-Mae, Freddie-Mac and the Lehman Brothers1, were going to lead us into one of the largest financial collapses in history? Lehman Brothers has been around in one form or another for over 150 years – who would have known?
Jeremy Gardiner of Investec Asset Management had a great analogy – ‘if the tech bubble was the flat tyre, this crisis is the seizing of the engine’.
Packaged bad debt that have made some banks a lot of money are now coming back to burn those that held them? Hence the bankruptcy filing of the companies listed above and many others that are in serious financial trouble. The biggest issue is that no-one really knows how deep the rot actually is. The biggest losses have supposedly come out, but there might still be some in the shell of the ailing US and European financial sectors.
So where does that leave us?
If you have been in the market for a while, you will be feeling the pinch in your portfolio. I know I am.
If you have only just go into the markets – what an excellent time to be getting in! With the markets having retreated to levels last seen almost two years ago, the value that one is getting nowadays is incredible.
So my advice to my clients is to NOT panic. Panic behaviour2 only enforces our trait as humans to just follow what the next person is doing. And if you wanted to sell out you should have done so more then 12 months ago. A great quote would be the following:
“Markets can stay irrational longer then you can stay solvent – JM Keynes”
The last thing one wants to do is become a person who does not follow the standard investment theory of buying cheap and selling high – this is a cheap phase and selling is definitely not the right strategy.
From the graph below you can see that we are at the same point that we were at in the middle to end of 2006. Extreme volatility, just maybe?
JSE ALL SHARE INDEX3 (5yr view)
In the last 12 months we have shot from the 25,000 mark all the way to a peak of around 33,000 in May of this year. And now all the way back to levels last see in August of 2006, of around the late 21,000’s. And I said something about volatility – this is similar to a roller-coaster at the Rand Show.
The important question thing to ask oneself is “Why am I investing?”
If it is for retirement or to put away some cash for a longer term goal, then you fears must be tempered somewhat.
Markets recover, or at least that is what has happened every other time there has been a market crash. There is also no evidence that would suggest that this time is any different to the others.
We must not fool ourselves into thinking we will be immune. If there is a global slow-down it will affect every country participating in the global market.
Watch how it goes on the international markets, this will direct how we will be affected locally. There has been a large outflow of money from local and international investors. This is due to risk appetite’s being somewhat reduced because of the financial meltdown and fears of a global recession. We are a third world country and as such are hit hardest by what happens in the first world.
Things should recover; we must just have faith and patience with the current market conditions. I do. These are exciting times, a new SA President was called up to take the reins of a country in a huge state of flux. Watch this space.
1 – Fannie Mae, Freddie Mac and Lehman Brothers are all listed US companies that have filed for bankruptcy due to debt that has been written of due to sub-prime woes. Lehman Brothers had debt of over $ 700 million. Go to www.google.com for more information on these companies.
2 – Panic or ‘herd behaviour’ is a financial phenomenon – first coined by an evolutionary biologist – just imagine a herd following each other wherever it goes. Blind leading the blind. Try Wikipedia if you are interested.
