The Dividend Pirate

Great visualization of the credit mess.

bear» credit» credit crisis» depression» lending» recession»

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I had just finished my 11th grade in 1997. If I had invested money in the broad US stock market index in 97, I would have made a 0% return today. Big losses send the two major gauges to levels not seen in nearly 12 years. Ouch!! Thank God I didn’t have much money then. An excerpt from CNN,

The Dow and S&P 500 tumbled to levels not seen in nearly 12 years Monday, as investors continue to worry that the government’s efforts to slow the recession won’t be sufficient.

The Dow Jones industrial average (INDU) lost 250 points, or 3.4%, ending at the lowest point since May 7, 1997.

The S&P 500 (SPX) index lost 26 points, or 3.5%, ending at the lowest point since April 11, 1997.

The Nasdaq composite (COMP) lost 53 points, or 3.7%. The tech-fueled index has held up better than the rest of the market so far this year, closing at the lowest points since Nov. 20, 2008.

“It’s fear-based selling,” said Dave Hinnenkamp, CEO at KDV Wealth Management. “The fact that we’re touching these multi-year lows tells you we don’t know where the bottom of this thing is.”

“There is just nobody who wants to buy right now,” said Ron Kiddoo, chief investment officer at Cozad Asset Management.

“Worries about how long it will take for the government programs to have an impact and worries about the health of the banks and the autos are all there,” Webb said.

But there is also just the day-to-day reality that many investors are losing money and don’t know when they are going to stop losing money, he said.

Happy 2009 to you all. Its been a tough and humbling last year for investors. We have seen great investment firms go belly up, numerous fraud schemes uncovered,  assets of every kind including home prices, stock prices, commodity prices and gold go down dramatically. In fact the economic award for last year goes to Ms. Jones.

My investments were no exception and fared pretty badly. But its all a part of the game and its important to take losses in your stride. The road to success is never straight. If you want your money to go up linearly, you should not be investing in stocks but in savings accounts and CD’s.  If you can’t withstand a 50% drop in your portfolio, investing is truly not for you. The sad truth is that everyone believes that they are aggressive investors during good times only to realize their true risk taking appetite during bad times such as last year.95% of investors invest at the wrong time because of a herd mentality. It somehow feels safer to do what everyone else does.Warren Buffet says it nicely,

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

The chart below shows the risks of going along with the herd mentality.

Be very careful of your emotions. Do not let them cloud your judgment. Its darkest before dawn. That being said I feel that we are going to hear some more bad news in the coming few months. The approach that I am taking is to wait and watch. If the market goes up, that’s good since I have enough money already invested. If the market goes down, that’s even better. You will see some insanely priced stocks. Would you buy a car if it was discounted at 80% value? You would, right. Its no different with stocks.There are experts who believe that the index might fall another 50%. Check this link to read more about it. If they turn out to be true, I cant emphasize enough the deals that you would be seeing.Talking about deals, there are already some stocks that have fallen below their book value and are looking very good.

If you were invested in - stocks, real estate, gold or for that matter any asset, this year has been a roller coaster. So how bad was it for stocks compared to other years. The chart below says it all,

If you are looking for the year 2008, check the bar on your extreme left. Thanks to fellow blogggers at dinksfinance  for making me aware of this graph.

There are 2 ways you can interpret this graph. Look at your returns for this year in your portfolio and sulk OR look at stocks that you can buy now at a 50% cheaper price compared to last year. If you like something for 100 dollars and now it is selling for 50 dollars, you should not be sulking but be delighted.

There are many stocks which are insanely priced at this point. If you liked Google, Apple and Microsoft a year back. You should like them all the more now since they have fallen big time. For example Google has fallen > 60% year to date.

As always the usual disclaimers,

• Do your own thinking before buying stocks. You CANNOT and SHOULD NOT buy stocks because some random guy on the internet blogs that a stock is good.
• Diversify your portfolio.
• Your investments might tank another 50%. If you cannot digest such churns in the market you are better off depositing your money in a savings account.

However if you are willing to take risks, there are seriously some nicely priced bounties out there for you. Now go raid!!!

Bear market» historic returns» recession» stock» stocks»

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