Revisiting the Global Financial Crisis

Revisiting the Global Financial CrisisHow did you feel during the depths of the GFC?

With the benefit of time, we tend to forget the strength of emotions we experienced in the past. I recently came across an email that we sent to a couple who were struggling with the uncertainty created by the Global Financial Crisis . It was written on 19th February 2009 – a couple of weeks before world share markets bottomed.

The email is a good reminder of the heightened emotions that prevailed at the time and the irrationality that they can produce. The couple were imagining all kinds of catastrophes and looking for any other solution than patiently sitting things out. Investor sentiment at the time was pretty low, with pessimists outranking optimists by seven to one.

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Putting the investment odds in your favour

Putting the investment odds in your favour

Managing investment uncertainty

Whether we like it or not, there’s a lot uncertainty involved in predicting the future. Despite the increasing availability of information, our ability to predict has not improved. This means that we have to learn to live with an element of chance when it comes to managing our investments.

You can manage this element of chance by managing the level of investment risk you hold. An appropriate strategy will consider a) how much risk is appropriate and b) how you will manage this risk exposure over time (or across varying market conditions).

In this article we look at another area of life where the need to manage elements of chance arises and make some comparisons on how we might apply this experience to investment management.

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Wealth Management: a risky business

Share and property investments are risky …Wealth Management: a risky business

Most people understand that the returns of growth investments (i.e. shares and property) fluctuate considerably. If they didn’t prior to the Global Financial Crisis, they most certainly have a better grasp of that now.

But most don’t really have a good understanding of the potential range of variation of returns, without anything particularly unusual happening. And nor do they appreciate how dramatically the pattern of returns can affect long term wealth outcomes.

We use the Australian share market experience of the 25 years to December 2009 to shed some light.
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Forecasting the Market – Skill or Luck?

Forecasting the Market – Skill or Luck?How good is your crystal ball?

We’ve just been through (arguably) the worst share market downturn since 1929. We’ve also experienced a recovery that few predicted was possible at the start of 2009. Why were we not able to predict these events earlier and with more precision?

You may think it’s because you don’t have access to the information that the experts have. Yet most of the experts find successful predicting just as tough. While it was hard to ignore some of the apocalyptic predictions that were being thrown around during the depths of the downturn, acting on them would have proved very costly.

So, which predictions do you follow and which do you ignore? Or is there another way to manage your financial affairs.

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The Golden Rules of Investing

Golden rules of investingWhen it comes to investing, there is an inordinate amount of information and opinion that is freely available. Most people have an opinion about the direction of the economy, markets, which asset classes or sectors will do best, and which specific securities will out perform. And most of these opinions are supported by valid reasoning and sometimes by informational “evidence”.

But how helpful is this when investing?

To be a good investor over the long term you need to abide by some intelligent investment rules. Unfortunately, devising the rules is a much tougher act than coming up with forecasts and opinions. Following the rules is even tougher, especially when they may conflict with your forecasts and opinions.

The three golden rules:

  1. Never invest until you have an articulated, long term strategy with a clear set of rules for investing;
  2. Never disobey the rules;
  3. Never ignore the rules. To do so makes them obsolete. Replace them with revised and improved rules, but never ignore them.

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