Has a fund manager, or an investment banker ever advised you to get out of their investment fund? Of course not!... That would cause a run on their stocks and they don't want that, now do they?
Do you ever hear political leaders or finance ministers tell you that we are in for a depression real soon? Like that's ever going to happen! No way! Not until it has already happened, then they talk... It would alarm people and bring the economy to an abrupt halt. The downturn would be much faster than if they feed you candy coated talk... So you get the sweetened version... It helps them save face and protects the economy from a sudden drop. (supposedly)
There are two common ways for investors to lose money in the markets.
#1 Market timing - that's reacting to daily, weekly or even monthly to news items in the economic world - most people do it wrong most of the time. (That's short sighted investing- one should focus on the 2 to 5 year range)
#2 Staying invested during a serious prolonged systemic failure in the markets.When markets drop 50% like they did in 2001 and 2002 it takes about 5 years for funds to get back up to a break even point. Zero returns for 5 years in anything but smart investing! Markets dropped over 50% in 2008 But we knew that would happen back in 2007. We are now in 2010 and if markets grow by 30% over the next two years it will have been 5 years again for the markets to reach a zero return.
Get out of equity investments when a systemic failure is coming. We knew for several years that this downturn was coming. It had to happen. You can't do really reckless lending and wildly drive up house prices by making ridiculously bad loans all across a country as large as USA and not have it fall apart. CNN has been keeping us informed of this crisis for several years prior to 2008. Anyone that owns a TV should be surprised by major declines in markets.
In 2007 I protected my clients by advising them to move 60% to 80% of their investments from mutual funds into bonds or daily interest accounts. That was because we knew the mortgage crisis and US real estate market fiasco was going to implode sooner or later. We knew that would cause serious economic repercussions during 2008 and 2009. I predicted a 40% to 60% drop. The Toronto Stock Exchange (TSX) was between 14,500 and 15,500 when I was moving my client's money to safe ground.
My prediction in Sept. 2008 when the TSX was about 12,000 was that it is about ½ way down. Again I predicted it would drop to about 8,000 during 2008 and 2009 before it levels out and begins a growth period and I see no reason to change my view now. (Actually it could go even lower). In hindsight it dropped to 7,600 before it began to turn around and now in March 2010 is back up to 12,000
My clients are happy now because they were earning interest, but more importantly they were able to buy back into the markets in increments during 2009 and that earned them a lot more money. What an opportunity that was!
Some of my other articles cover what is needed to be better equipped to spot major downturns ahead of time. But understanding that fund managers and politicians would not be doing their jobs, and wouldn't be doing us any favors if they did come our ahead of time and tell us saw a serious problem looming. That would really cause a swift collapse sooner and quicker. There would be no chance for us to plan for it ahead of time.
