share price fall - any thoughts?, page-5

From one of the free mailers I get from time to time.
A LOT of money has been on the sidelines awaiting a correction afetr the run up form March.

Each to their own......................


This week, we were given the first bit of bad economic news we've had in quite a while when the World Bank said they had cut their forecast of world growth from a negative 1.9% to a negative 2.9% - Not good. However, that negative, and nasty change is not coming - it's already happened. They are reporting history. The fact is the worst really is over, it's just the first part of the year was actually worst than we thought it was. What's also important to remember is that the World Bank is also predicting that world growth will return in the second half of this year. This just emphasises how bad what we just went through was. I'd like to emphasise "was".

Between January and March this year, the picture looked pretty bleak for investors. We had all sorts of chaos - bank insolvencies, crumbling auto industry, housing industry in turmoil, bankruptcies and a host of other problems that drove stock markets around the world into free fall. For many, it almost seemed like the end of the world.

In all the years I have been involved with the stock market I have never seen such negative sentiment. Some people were stocking up on gold and food supplies in preparation for financial Armageddon. "Survivalists" around the world were rejoicing that what they had planned for all these years was about to come true. We had academics like Nouriel Roubini popping up after years of being ignored and attempting to scare the life out of us with predictions of global meltdown. I had people writing to me in March telling me I was irresponsible and my opinions would send people to the poorhouse. It was all happening!

Well it wasn't long after that stock markets around the world started one of the strongest rallies in history and economic news went from mostly bad, to mostly "better". The emails of outrage against me disappeared and my subscribers and I went about making money investing in the best stocks we could find with outstanding results of around 65% profit in the first 6 months of this year.

However, some investors never want to touch stocks again. While sometimes it's prudent to have a portion of your assets in cash temporarily, it's a big mistake in the longer term. If you are a more conservative investor, you may need to see real signs that situation has bottomed economically and is on it's way up again. I think we are at that point now. The banking system has stabilised and beginning to look "normal" and US housing is stabilising with more good news this morning that US home sales continue to rise and the inventory of houses for sale has dropped to 9 months supply from 14 months at the height of the crisis. During normal times, it's around 6 months. It's dropping at a rate of around 1 month of supply every month, now that banks are lending again. We should see solid improvement before this year is out.

Over the years we have seen "panics" of this type come and go and each time there has been a group of people who have declared "the end is nigh". While often we ignore them, sometimes their message sinks in and makes us not trust our gut instinct as we normally would. "What if this time, it is the end?" Fear is a powerful emotion and will always take the lead over greed. As investors we must always remember we will generally err on the side of caution and tend to give greater weight to pessimism over optimism. Don't allow your investment decisions to be ruled by emotions. It's important to look to understand what's really happening. Have you ever heard of "Look at the window economics"? This is where you simply see if all the pessimism is justified based on what you can see with your own eyes. Last night my wife and I went to dinner with a friend at a small suburban restaurant near our home, it was full. On a Tuesday night this "ordinary" restaurant in a middle class suburb was full. This is not like any "recession" I've seen. You talk to people and they all tell you the same thing - things were bad early in the year but they seem to be picking up now. Look around you and you see things are returning to normal. Go to your local shopping mall on Saturday... oh, you don't like crowds? See what I mean?

The Global Financial Crisis is just one in a long long line of "panics". Remember back to the Latin America Debt Crisis in 1995, the Asian Contagion in 1997, the Long-Term Capital Management Crisis in 1998, the Tech Crash in 2000 to 2002 and the Russian Debt Crisis etc. They all ended and each time we moved into a new economic growth phase, which is precisely what we are about to do later this year.

Most investors have taken a "body blow" in the last 18 months and some of them will never make up for their losses - well, not for a very long time. Their superannuation and retirement funds have been decimated. The chances are they make make their money back - but they will never achieve the investment goals they probably believed very achievable in 2007. The last 2 years have placed a permanent handicap on their retirement that will never be removed.

It doesn't have to be that way!

Some investors will come back from this stronger and richer than ever before. They do it by simply taking opportunities when they present themselves. They have a plan. They have investment strategies that protect their capital and they utilise "look out the window economics".

At the moment, the markets are in a standard correction phrase after the powerful run up since March. Another opportunity has presented itself. If you doubt the economic situation is recovering, then ignore the newspaper and go to a shopping centre or a restaurant. You'll see what I mean.