Father Sez

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The Financial Meltdown – What should we do?

Friday October 17th, 2008 by fathersez

No one (unless he /she is living under a coconut shell) can say that they are unaware of the major brouhaha that is currently going on all over the financial world. Banks closing, banks being taken over, stocks plunging, commodities plunging, fortunes lost etc. are daily headline news in almost all newspapers and news portals. 

What should we do about our holdings in the stock market?  

The conventional wisdom seems to be to just sit this through. And history seems to be in favour of this. I think for this wisdom to work, two important assumptions should be in place. One is that we made our stock picks very wisely in the first place and the second is that we have a long term time horizon on our stock investments. 

See PTMoney’s posting of a video of Mr. John Bogle seeking to calm our nerves and to stay the course. 

Another equally compelling school of thought says that we should never go against the major trend. So if the major trend seems to be down down (like what it seems now), we should just get out and stay out till the coast is clear. After all, no matter how much we are losing now, we’ll lose more if the decline continues.

I am one of the luckier ones who does not face this predicament today. Not because of adroit investing skills but because I cut my losses (horrendous ones, if I may add) earlier in the year.

So I am presently free of any stockholdings, except for the investments in unit trusts that I continue to dollar cost average monthly (These are meant for the younger kids’ education, so there is a pretty long time horizon attached). 

I am continuing because as the chart in the link below shows, far worse has happened before and we rebounded. I also remember the dark days of October 1987 when we thought the end of the world had come….and it didn’t.  

 The Kuala Lumpur Composite Index So what should we do?

Only you can answer this.  

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2 Comments for “The Financial Meltdown – What should we do?”

by PT
On October 17, 2008
At 9:55 am

I *really* hope “staying the course” will serve me well. I (like the average person, I think) am invested mainly in mutual funds. Thus, spreading my risk across many companies.

As a whole the companies I’m currently invested in will be worth a heck of a lot more in 10, 15, 20 years. American companies (and Americans) are still producing products and services of value. As long as we keep doing that we’ll be fine.

This market is crazy for sure though. Not fun to watch. But almost comical at some point, imo. The massive ups and down don’t make sense, and don’t seem to truly reflect value right now.

Great post and thanks for the link.

by eugene
On October 22, 2008
At 11:33 am

i can only say, this economic turmoil is the result from the greed of man, we dont believe in demand and supply teory anymore, man can inflate RM100 of commodity to hundred folds, make the killing and let it take a free fall.

Fundamentally speaking what goes up, must come down. so are we prepared for both scenario, i am not, i hope i will be.

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