Have Faith, Stay Invested
Finally managed to allocate some time to blog again. :-)
It wasn't hard to miss, the tonnes of news about the current credit crisis that causes the market rout around the globe. The amount of fear present in the market is at its high. On a personal note, I thought it will be interesting to do a bit of research on where the current crisis stands, as compared to some selected earlier crisis of the century. Do we stay invested in the market or do we pull the plug and stay out of the market like the current herd?
I intend to use Dow Jones (DJI) and the Straits Times Index (STI) as the basis for this simple study. All graphs displayed here are extracted from Yahoo Finance, a very useful platform for investors to do research with.
Overall View of Dow Jones
Overview, the stock prices experienced a lot of volatility on the short term. Over a long period of time, stock is always on a rising trend.
I intend to use Dow Jones (DJI) and the Straits Times Index (STI) as the basis for this simple study. All graphs displayed here are extracted from Yahoo Finance, a very useful platform for investors to do research with.
Overall View of Dow Jones
Overview, the stock prices experienced a lot of volatility on the short term. Over a long period of time, stock is always on a rising trend.
The Great Depression (Late 1920s to Early 1930s)
This is by far the most severe crisis of the century. Dow Jones crashed more than 90% over a period of 2.5 years. All seems lost when this crisis happened back then. Dow Jones managed to recover 60% of its earlier lost in 5 years and a full recovery in 20 years.
This is by far the most severe crisis of the century. Dow Jones crashed more than 90% over a period of 2.5 years. All seems lost when this crisis happened back then. Dow Jones managed to recover 60% of its earlier lost in 5 years and a full recovery in 20 years.
The Oil Crisis (1970s)
Inflation was extremely high and the fear that oil is running out caused the stock market to plunge 45% within 11 months. Dow Jones subsequently recovered from its low, back to its 1974 level within 9 months.
Inflation was extremely high and the fear that oil is running out caused the stock market to plunge 45% within 11 months. Dow Jones subsequently recovered from its low, back to its 1974 level within 9 months.
September 911 (2001)
The terrorists attack on 11 Sep 2001 caused stock market to plunge 25% within 2 weeks. Dow Jones subsequently recovered from its low within 3 months.
The Dot.Com Bust (2002)
The bursting of Dot.Com bubble in 2002 caused market to plunge 30% in 5 months. Dow Jones subsequently recovered from its low to where before the bubble burst within 15 months.
The Credit Crisis (2007 to now)
The current credit crisis caused massive market plunges by 40% and at in point of writing, we have not reach the bottom of the pit yet. Analysts are anticipating that the economy should pick up by early to mid-2009
The current credit crisis caused massive market plunges by 40% and at in point of writing, we have not reach the bottom of the pit yet. Analysts are anticipating that the economy should pick up by early to mid-2009
---
Obtain more knowledge to ease your fear.Read more at eBooks.com - Download a book today 
---
Turning our attention to the Singapore STI, I’d identified a few incidents to look into too. First, let us take a look at the generic trend of STI from 1987 until now.
Overall View of STI
Overview, the stock prices experienced a lot of volatility on the short term. Over a long period of time (20 years in this case), equity as an asset class is always on a rising trend.
Asian Financial Crisis (1997 – 1998)
STI plunged 60% over a period of 11 months. It subsequently recovered to pre-crisis level within 8 months.
The Dot.Com Bust, Coupled with SARS Epidemic (2002 - 2004)
The bursting of Dot.Com bubble in U.S. back in 2002, coupled subsequently with the SARS epidemic, caused market to plunge 30% in 11 months. STI subsequently recovered from its low to where before the bubble burst within 8 months.
The bursting of Dot.Com bubble in U.S. back in 2002, coupled subsequently with the SARS epidemic, caused market to plunge 30% in 11 months. STI subsequently recovered from its low to where before the bubble burst within 8 months.
The Credit Crisis (2007 to now)
The impact of the current credit crisis starts to manifest on STI in late 2007. STI slide from its high of 3,800 pts to the current 1,900 pts at the time of this writing. This amounts to 50% crash from its peak within a span of only 10 months! Ministry of Finance had announced that Singapore had slide into a technical recession on 10 Oct 08. The whole impact of this crisis has just started to hit Asia.
Conclusion
It is not possible to construct an investment portfolio and don’t expect that the ride will be smooth throughout the investment journey. But over long term, equities are still the way to grow our wealth as it can be observed that stock prices fluctuates over the short term and but indexes (DJI and STI in this context) rises in the long term. If we have the financial education to handle investment directly into companies’ shares, the returns may be even higher. Learn the rules of the money game well and be prepared to see and capitalize opportunities.
So have faith my friends. Stay invested. :-)
It is not possible to construct an investment portfolio and don’t expect that the ride will be smooth throughout the investment journey. But over long term, equities are still the way to grow our wealth as it can be observed that stock prices fluctuates over the short term and but indexes (DJI and STI in this context) rises in the long term. If we have the financial education to handle investment directly into companies’ shares, the returns may be even higher. Learn the rules of the money game well and be prepared to see and capitalize opportunities.
So have faith my friends. Stay invested. :-)
Cheers!
Leroy
"When I Stop Learning, I Stop Living."
Posts
