Fortune Watch

The year 2008 has entered the record books for all of the wrong reasons; the Dow Jones had its worst year ever! So what about 2009, how will stock markets from around the world perform and which are the stocks to follow?

Well in reality you need a crystal ball to be able to answer these questions. 2009 may well be another tough year.

I am a person who enjoys investing on the stock markets and I have to say that I am a bit of a gambler; I am quite prepared to take a risk with my disposable income in the hope that I can increase it etc. Just a quick note however, I am a financial adviser and anything that I write or suggest in this article should not be seen as advice.

I personally believe in investing an amount of money (an amount that I can afford) on a monthly basis instead of investing lump sums. This way I am able to take advantage of what is commonly referred to as Dollar cost averaging in the United States. This is where when prices are high your monthly contribution may buy fewer shares or fund units but that when prices are low your investment buys more shares or fund units.

During these volatile times this method of investing may prove to be the most prudent. Even though stock markets had a very poor 2008 and is therefore quite low there may well be significant falls ahead.
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“Absolute Truth” well science maintains there is there is no such thing like that, but from the current global financial crisis it is evident that there is no absolute free market. Truth is always relative, just like freedom.

It is important to look for positive points to find a way out of the financial crisis, apart from philosophic controversy.

All countries, whether separately or collectively, are working hard to contain the crisis, or at least to reduce losses, despite the gloomy picture of the global economy and the pessimistic atmosphere blanketing the entire world.

Although it is difficult to speak about positive points while the entire world is facing such a crisis, there must be some positive aspects.

The first of these positive effects is that the financial crisis ushers in an end to the domination of the sole magnate in international financial relations, which was a major cause of the crisis.

Wall Street was the world’s most powerful investment house, just a few months ago, where investments used to pour from the East and the West. Now Wall Street means bankruptcy, and investors in fear of losing their money do their best to avoid it.

At present, there are regions in Europe and Asia, including the Gulf region, emerging as hubs of huge investments, which will bring about more stability to the world financial system. This shift is important for restructuring international relations in the post-crisis stage.
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As the growing number of foreclosures and the value of stock portfolios hit bottom, news reports from the US of the financial fallout are growing increasingly dire.

Layoffs, foreclosures, cutbacks – there are plenty of grim economic stats out there this holiday season. Here’s perhaps the grimmest one of all: Calls to National Suicide Prevention Lifeline hotline have soared by as much as 60 per cent over the past year.

Mental health experts say the sour economy has turned what usually manifests as seasonal blues into a full-blown crisis. The fear of losing one’s job and pressures caused by a downturn in business, demotion or pension plan cutbacks can be bad for mental health and therefore increase suicide risk.

“Fear is the No. 1 emotion we’re hearing. People are feeling hopeless and helpless because of the economic crisis, and many feel that things aren’t going to get better. Now many of the calls are from people who have lost their home, or their job, or who still have a job but can’t meet the cost of living.”

A 90-year-old woman in Ohio shot herself while being served an eviction notice. A 45-year-old businessman in Los Angeles murdered five members of his family before turning the gun on himself, saying in a suicide note that he had done so because of his troubling financial situation.

While these stories put a human face on the toll the financial crisis has taken, the Director General of the World Health Organization this may only be the tip of the iceberg. As people struggle to cope with losing their homes or livelihoods, she said, “It should not come as a surprise if we continue to see more stresses, more suicides and more mental disorders.”
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Have you ever seen a road accident happen? You must have, since many generally drive like idiots and have a high accident rate. Whenever I see a road accident and later think about how it happened, I can’t help feeling that while most of us drive like idiots, most of the time accidents happen when two idiots do something idiotic at the same time and at the same place. One guy is happily speeding, while trying to read a text message and just then another one in front of him decides to turn right without revealing his intentions beforehand. Either one would have got away but the two in combination becomes an event.

The stock markets are just like that. While one company or one industry may be driven by some particular factor, a prolonged bull market or a bear market only happens when many different factors come together. Sometimes, some of these factors may be related but at other times, they may be unrelated. It could just be a coincidence that they are happening at the same time.

There has never been a correction that has not proven to be an investment opportunity. While everything is down in price, there is actually less to worry about than when prices are historically high. More money has been lost by people who bought into last year’s markets than by those who will buy into this one, at this stage of the correction. When the going gets tough, the tough go shopping.

Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. This correction is worse than most that I’ve experienced, but the doom and gloom scenarios many have been pushing are unlikely to come to fruition. Once the media elects a new president, they’ll just have to start reporting better news: 96% of all mortgages are current sounds a whole lot better than 20% of all sub-prime mortgages are in trouble.

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Another crisis unfolding in the US, if this is likely to give you sleepless nights and you ponder on whether to sell or hold on to your equity portfolio, here’s a word of advice. Stay calm and invested, don’t panic and sell.

You don’t incur losses till the time you book them. Equity markets behave in this fashion and investors should take such falls in their stride. If you are a long-term investor, you are likely to get the best returns in such turbulent times.

At such low levels, markets look quite attractive. For investors waiting to venture into the markets, this is an ideal time to average out the cost of purchase. Invest in stocks that are fundamentally strong, preferably in a broad-based index that gives you exposure to large cap stocks. Avoid small or mid-cap companies. But if you lack understanding or don’t have much information, then take the help of professionals or try the mutual fund way.

To start off, one can look at index funds that mirror the movement of an index. Index funds should form the nucleus of your equity investments and other funds should surround it. These funds act as a stabilizing factor in an equity portfolio and should not be always seen as a return-giving factor.

But how about those who are already neck-deep into equities? “Stay invested. Don’t change the investment strategy and keep investing in a staggered manner.”

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The US is already in a recession and it will be longer as well as deeper than many people expect, US investor Warren Buffett said. Warren Buffett said the economy is still in a recession and unlikely to improve before 2009 but that stocks appear better valued than a year ago.

He said in an interview the US was “already in recession” and added: “Perhaps not in the sense that economists would define it” with two consecutive quarters of negative growth. “But the people are already feeling the effects,” said Buffett, the world’s richest man. “It will be deeper and last longer than many think.”

“You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,” said Buffett, who in March was called the world’s richest person by Forbes magazine.

But that is just part of a market system. And you know, if I had to pick the chances that we are going into a recession, I would say they are fairly significant, but I don’t know anything that you don’t know.

However he said that won’t stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.

“If the world were falling apart I’d still invest in companies,” he said.

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U.S. stocks will continue to fall next week, in continuation of a sell-off that saw the Dow Jones Industrial Average experience its worst week in over four years, due to nervousness that the easy-money binge of the last few years has come to an end. No fireworks in earnings so far.

It will be tough for Wall Street to shake off the bear market blues next week if the price of oil keeps rising and the earnings season kick-off from Alcoa and General Electric disappoints investors. Stocks will remain vulnerable to any new signs of distress from hedge funds hit by their exposure to bad U.S. home loans, as well as from credit markets, where Wall Street firms and corporations are finding it harder and harder to obtain financing.

Oil has become the biggest wild card for growth and corporate profits. It jumped to a record above $145 a barrel on Thursday, driven by tensions between Israel and Iran, before the long holiday weekend to mark US Independence Day.

The price of crude is up 50 percent so far this year.

On Friday, US markets are closed on July 4th for the Independence Day holiday.

Financial results from Alcoa and GE will kick off the second-quarter earnings season next week. Aluminum company Alcoa, the first Dow component to report results, will release its quarterly numbers on Tuesday. GE, another Dow industrial and a bellwether for the US economy, will report earnings on Friday. Aside from second-quarter results, investors are anxious to see the companies’ forecasts for world economic growth and their own corporate sales prospects.

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For the uninitiated, the stock market looks either a rosy picture or the dooms day scenario. Actually it is a mixture of both. By investing wisely, you can get the money of life time or if you are not careful, you may lose money of life time.

Don’t follow the herd mentality. This is one of the top mistakes to avoid. The herd mentality is THE reason why many investors lose their money. Actually when your neighbor or friend is buying, since everyone is buying, stop and think for one moment “is this share worth its money today and does it have a growth potential?” If the answer is a YES after study of the share, go ahead and buy that share. If you have a slightest doubt, refrain from buying. Do not buy just because someone else is buying.

Not deciding your time line: When you start investing in stocks, you have to decide your time line or profit margins when you are going to quit. If you do not do that you may pass on the period of greatest value for your stock. Thinking that your stock will go up when it has reached its present peak, is a sure way of losing your money. Of course it is not possible to sell your stock at peak very time, but if you have decided the limits, you will not be sorry.

Not cutting down losses: For every stock, there is a range and depending on the general market conditions and fundamentals of the company you can decide the price of the stock you hold. If either of the above two conditions compel a stock to go down, have predetermined limits when you are going to sell irrespective of market conditions. This will cut down the losses you may have in future.

Taking too much risk: If you are a reckless investor, you will have blame yourself for taking too much risk. A calculated risk is what one is expected to take in stock markets. Taking too much risk based on hear say from the market, is a sure way for doom.

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