The last week was historic from any measure, the S & P and Dow Jones Index had the highest ever fall ( around 18%) with a cumulative loss of over 40% from their October 2007 peak. The historical significance is well captured by this article form Barrons. The historic simultaneous rate cut form the central banks around the globe ( US, Europe, Canada, Australia,South Korea, Taiwan and Hong Kong) also couldn’t help much. I saw the market closely, no asset class was spared, there was sell off across the board- treasury bonds,commodities, stocks, emerging markets and currencies. Literally there was no place to hide other than probably gold which did see some bids on flight to safety fears. What does it mean, is it a buying opportunity? Depends, if you are a long term investor( 5 to 10 years), may be yes. Otherwise, I do not expect the markets to recover anytime soon. The damage done is huge and it is going to take more than couple of days of short covering rallies to really stop this carnage. The market needs to stabilize first, then couple of months of consolidation phase will likely follow and after that the market can either take next leg down or try to put up some defense and bounce back. Yes one should buy low and sell high, but that approach has its own risk. Had you bought Lehman or Washington Mutual or Freddie Mac or Fennie Mae, your investment would have gone to near zero, no matter what strategy you applied. No amount of bottom fishing or dollar cost averaging would have saved you. So a caution is in order. I know, because for some time I ignored the advise of trusted magazine like Barron which had warned investors about these institutions and still bought the stocks thinking all the bad news is priced in. Guess what, the unthinkable happened and now these companies, which were shining stars just a year ago, are all bankrupt! Obviously I learned a very costly lesson and here I thought I knew all about investing! Buy low PE companies didn’t work! Buy low , sell high didn’t work. There are times where no strategy is going to work other than staying in cash, there is a reason why in investing you hear many times- cash is king!! That may be the best strategy for now.
The markets will recover, they always do, but we need to wait and watch for the signs, no point jumping the gun. Once the market really recovers, there is going to be plenty of opportunity to deploy your capital, for now though, I am sitting on my hands and not investing anywhere, not even in my favorite plays(commodities) , for all I know there may be a deflationary cycle coming and these commodities can stay in a trading range for a long time. I get tempted to buy these commodities but then remind myself how gold, silver , crude all stagnated for years ( 1985 to 2002, oh yes crude did had some bounce during gulf war I, 1991-92, but that was short lived ), who knows we may be entering one such period. Better safe than sorrow!!

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The last week was historic from any measure, the S & P and Dow Jones Index had the highest ever fall ( around 18%) with a cumulative loss of over 40% from their October 2007 peak. The historical significance is well captured by this article form Barrons. The historic simultaneous rate cut form the central banks around the globe ( US, Europe, Canada, Australia,South Korea, Taiwan and Hong Kong) also couldn’t help much. I saw the market closely, no asset class was spared, there was sell off across the board- treasury bonds,commodities, stocks, emerging markets and currencies. Literally there was no place to hide other than probably gold which did see some bids on flight to safety fears. What does it mean, is it a buying opportunity? Depends, if you are a long term investor( 5 to 10 years), may be yes. Otherwise, I do not expect the markets to recover anytime soon. The damage done is huge and it is going to take more than couple of days of short covering rallies to really stop this carnage. The market needs to stabilize first, then couple of months of consolidation phase will likely follow and after that the market can either take next leg down or try to put up some defense and bounce back. Yes one should buy low and sell high, but that approach has its own risk. Had you bought Lehman or Washington Mutual or Freddie Mac or Fennie Mae, your investment would have gone to near zero, no matter what strategy you applied. No amount of bottom fishing or dollar cost averaging would have saved you. So a caution is in order. I know, because for some time I ignored the advise of trusted magazine like Barron which had warned investors about these institutions and still bought the stocks thinking all the bad news is priced in. Guess what, the unthinkable happened and now these companies, which were shining stars just a year ago, are all bankrupt! Obviously I learned a very costly lesson and here I thought I knew all about investing! Buy low PE companies didn’t work! Buy low , sell high didn’t work. There are times where no strategy is going to work other than staying in cash, there is a reason why in investing you hear many times- cash is king!! That may be the best strategy for now.
The markets will recover, they always do, but we need to wait and watch for the signs, no point jumping the gun. Once the market really recovers, there is going to be plenty of opportunity to deploy your capital, for now though, I am sitting on my hands and not investing anywhere, not even in my favorite plays(commodities) , for all I know there may be a deflationary cycle coming and these commodities can stay in a trading range for a long time. I get tempted to buy these commodities but then remind myself how gold, silver , crude all stagnated for years ( 1985 to 2002, oh yes crude did had some bounce during gulf war I, 1991-92, but that was short lived ), who knows we may be entering one such period. Better safe than sorrow!!