Crisis or Opportunity? Liam Hendrikse
I thought I'd briefly veer off my intended path, in order to take this opportunity to address the current state of the markets. I was back in the UK during the most recent "melt down," and remember waking up on Monday, September 15 to find out that, as expected, Merrill Lynch sold itself to the Bank of America, and Lehman Brothers had filed for bankruptcy.
Let me just say, that nobody does media sensationalism quite like the Brits. Legit newspapers and tabloids had a field day. The city was buzzing even more than usual, and the pubs were packed (of course, 5000 Lehman staff in London's City district had just been sacked – maybe that had something to do with it). Literally everyone I knew, had a friend or relative that had just lost their job, their promised year-end bonus, and, as share-owners of Lehman Brothers, a huge amount of money.
Let's put aside the fact that, many bank-employees participate in share purchase programs of their own common stock, and their financial plan is not properly diversified. Newspaper headlines were screaming that the end was near – but that's news, not the truth.
So, if you guys heard about the "melt down," what did you think? Was it a disaster, or an opportunity? Taking an objective viewpoint, it was a little of both. Bad for the current state of your long-term financial plan, but at the same time a good opportunity for your long-term financial plan.
Sure, the current US commercial and investment banking system burned through nearly two trillion dollars in capital, but those of you who remember the tech/dot com/9-11 crash between 2000 and 2002, four trillion dollars disappeared!
And the economy bounced back, and everything was rosy again. The same thing happens with the big fashion houses, Hollywood stars; it defines the human spirit.
The current crisis will end, just like every single other financial crisis in the past. If you believe in the spirit of humanity, the world will continue to progress, grow and be more and more innovative.
What is also amazing, is that many properly balanced investment portfolios have not taken the "big hits" like those in the headlines. More so, the markets are historically resilient after major declines. After the crash of '87, when the Canadian market fell over 20 percent, it took 21 months to get back to "break even." After the 10-plus percent decline that followed the 9-11 attacks, it took the Canadian market 47 days to recover its losses.
When will the markets start to turn around? I cannot say – maybe next year, maybe next week. The opportunity that presents itself, irrespective, is that a gradual process of investing at regular intervals in a down market (when stocks are On Sale) can generate better returns, long term.
Let's put it this way – would you rather shop at Bottega Veneta when everything is on sale, or at full price (wait, do they ever have sales?!)
And for those of you who have received Bottega Veneta as "freebies," please keep your comments to yourself.
I promise I'll get back on track, shortly!
Liam Hendrikse is an independent financial advisor, and a model with Sutherland Models. He provides 1st and 2nd opinions on new and existing personal financial plans. He's also a forensic scientist, but that's another story altogether...
email: liam_hendrikse@rogers.com
This is intended as a general source of information only and is not intended to provide any personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Liam Hendrikse is solely responsible for its content.
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