Tuesday, January 22, 2008

Don't Panic... Yet.

It would be easy to become hysterical and suggest that panic is sweeping the world’s financial markets. To some extent that’s exactly what is happening, but it’s no reason to become hysterical. While the United States began this week with a public holiday, Asian and European markets have suffered their biggest one day drops since the September 11 terrorist attacks of 2001. To some extent there seems to be an over-reaction to fears of an American recession which may or may not occur.

While I believe the United States is confronting a recession, there is reason to believe that Australia, and the rest of the world, is much better placed to ride out the storm. The good news is that most downturns are temporary. Even after the 2001 reaction to the terrorist attacks, most of the losses were regained within months.

The lesson here? Well if you have money in the sharemarket and on paper you are sitting on a loss, check on the fundamental quality of the companies you hold. If they are sound, just sit tight and wait for sunnier days to return. It’s just a matter of how long it will take to regain the lost ground. In the 1987 crash Robert Holmes a Court was asked how much he had lost. He replied that he had lost nothing because he had sold nothing.

So long as you still have dinner on the table, there’s nothing to panic about.

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