(03) 9020 2905Stiff upper lip, investors. Keep it together. The end is in sight.
Worst case scenario: Only 10 more sleeps.
But Christmas is a time for optimism. So let’s look at it this way – there’s only six more trading days to go (and two of those are half days!)
After that, investors, 2008 – one of the worst calendar years in generations – will be over. May we never see another like it again!
Find me an investor who will shed a public tear about the passing of 2008! But I’ll bet you a vinyl copy of BruceSpringsteen’s Darkness on the Edge of Town that there’s more than a few investors who’ve shed tears in private.
Possibly into their pillows (in the foetal position). Possibly into their partner’s arms on the kitchen floor (in the foetal position), after the kids have gone to bed. Or perhaps in other favourite foetal positions, such as the armchair, or the shower with the nozzle running endlessly to wash away the salty streams.
We will see another like it again. Because markets are cyclical and as a race, we’re not particularly good learners. Like Wile E Coyote chasing that damned Roadrunner. How many times did a huge boulder crush him?
If you’re anything like me – an investor who has stayed as fully invested as humanly possible – the end of 2008 will be cause for some celebration. I won’t be alone in feeling like Rocky Balboa after 15 rounds with Apollo Creed in the original Rocky. I’ve had the crud beaten out of me … but I’m still alive.
“Yo,Adrian!”
So, in the hope that this copy of The West Australian can be saved into a scrap book for my children and grandchildren, today I’ll pass on five of the most important lessons that I’ve learned from “The Great Carnage of 2008”.
Lesson one: Things can always get worse.
You’ve just had your worst day ever at work. You pull up at the safety of home. Between closing the car door and opening the front door … a bird poops on your suit.
Most of us “experts” – economists, stockbrokers, journalists and financial advisers – thought the worst was over by July. The market had fallen from 6800 to around 5000 points. About $350 billion had been lost. And just when we were thinking: “Phew! That was close!”, we got September, October and (we hope finally) November.
Note to self: Build in more of a buffer on the margin loan.
Lesson two: “Stronger for longer …”
This will last forever! No, that’s just last year’s ‘sucker line’. It was preceded by “Does it have an internet strategy?” during the dot-com boom. Before that, it was “Asian strategy”. It started hundreds of years ago with tulips. By the time the investor on the street gets up to speed, the trend is about to turbo thrust into reverse. Sort of like when your parents finally learned how to say “Derrr” properly.
Note to self: Everything will “revert to mean”.
Lesson three: Diversify by time
Diversification isn’t just about varied industries in your stock portfolio or spreading money across asset classes. Diversification is also about time. You’ve got to add to your portfolio in good times and bad. If you’d been investing a similar amount every year for the last 10 years, you’d be well ahead, even if what you’d bought in the last three years was underwater (like KevinCostner’s career after Waterworld).
Note: Buying this year will provide good averaging.
Lesson four: Big is beautiful
“Baby got back”, sang Sir Mix-a-Lot, in saying that he had a thing for big backsides.
Who’s been caned the hardest in this bear market? The top 20 companies have fallen 40 per cent. The bottom 200 of the ASX300 have fallen 60 per cent.
Note: Bigger stocks are one-stop diversification shops – over sectors, commodities, countries and products.
Lesson five: Cash is … a dunce
In January, we were told interest rates would rise all year – that cash was king. By the middle of the year, that was looking shaky.
Just a few months later, the Reserve Bank’s rate had been cut by three full percentage points to 4.25% and likely to fall further. That’s the same rate as ING Direct is offering.
The problem? Inflation is 5%.
Cash in a bank account is going backwards, even before the taxman gets his share of your interest.
Note: Cash ain’t king. Sure, there’s more risk with equities, but at least there’s a chance of growth.
That said, if you’ve been fully invested in cash for the last year, then … I want to know where you’re celebrating New Year’s Eve. It’s your shout.
BruceBrammallis the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser.
Contact Bruce: bruce@debtman.com.au
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