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It hurts. It’s a Bear Market!

August 21st, 2008 · Greg Atkinson · No Comments

Nobody likes to see their investment portfolio decrease in value but for most of us, that is what has been happening now for most of 2008. The downturn in the stock market has hit everyone, from top fund managers to amateur stock traders and there must be a lot of nervous people close to selling out of the market.

We are of course in a nasty bear market and bear markets hurt. They are not nearly as much fun as bull markets, but bear markets come along every now and then to knock some sense into us all. A bear market takes excesses out of the market, it weeds out weak companies and as the theory goes, sets up the base for the next bull market.

Of course everyone would like to know when a stock market rally will come that will drag us out of the depths of despair, and of course none of us have any idea….but eventually a rally will come. (well so history tell us anyway)

One of the problems we face today as investors is that there is too much news swirling around in the financial media. We are faced with sensational headlines, stories of gloom and doom and so called “expert analysis” by people who are quite frankly, not experts. I have discussed this issue before in The good,the bad and the ugly sources of stock market advice.

The result of all this “noise” is some of the facts get lost along the way such as the Australian major banks are still racking up big profits, the mining sector is doing just fine, (BHP has just announced a record profit) and the Australian residential real estate market is not on the verge of a U.S style collapse.

Yes I know some clowns in the financial media try and scare us all by suggesting what is happening in the U.S could happen in Australia but it will not happen for a couple of important reasons. The first is that demand in the U.S for housing (and other things) was kicked along by very low interest rates, less than 2% in 2002 for example and rates only hit around 5% in the U.S last year. Secondly as we can see now, there was an over supply of new homes in the U.S. however this is certainly not an issue across most of Australia. (quite the opposite in Sydney actually).

So we are in bear market yes, and it hurts just as it did in 2002/2003 when I recall wondering if the ASX All Ords would ever stay over 3000. Some companies are not doing well (and as an investor in Babcock and Brown I know this painfully too well!) and the chances are we all own stocks that will never recover to their 2007 peaks.

But remember to try and focus on facts and hard data not sensational headlines, and if you focus on the facts this should help you realise that the sky is not about to fall in and better times will come along again..eventually.


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