Investing Lessons From the Worst Stock Market …

1 Investing Lessons From the Worst StockMarket correction in 60 YearsThe 2008 Stock Market correction will go down in history as one ofthe Worst ever. At the end of the year, the world s Stock markets weredown 35% to 55% depending on the country, with some punditspredicting three years of deep recession a slowdown that will rivalthe Great Depression of the 1930 s if it fall has been humbling to most Stock Market investors: it causesone to reflect on whether goals are still possible; the logic of the Investing choices made and of course and the future investmentchoices our opinion, the world today is nothing like the 1930 s.

2 We will not wallow in misery for years. Poppycock. With coordinated government intervention, capitalism entrenched around the world, a reduction of debt levels set to occur and simply allowing some time to heal, the world s Stock marketswill once again turn up and head into the next economic boom phase as the world continues to growlong term. Perhaps this will occur by the end of 2009 by 2010 at the latest in our opinion. Therehave been ten significant end of world Stock Market corrections since the 1950 s all of whichlasted months to a few years all of which were followed by significant boom phases once again.

3 But this recession feels different many say. Investing has changed forever. Let s look at some of theevents that have occurred this year and what their impact may be on your future investment Death of Buy and Hold?Investors in the American S&P 500 Stock Market index have earned a negative return over the tenyear period ending October 31, 2008 . That will test anyone s patience. How long are you expected to wait for good Stock Market returns? But be careful here however: a measurement like this all depends on your starting and ending point.

4 Measuring results with the endpoint at a record low canproduce results like this and you may also get a much more positive average result in two years ifthe markets spike up and you take the measurement again. I think the real message is that if a periodof poor returns happens at key point in your life, ( a year before retirement or before a child startsuniversity), the impact on achieving your goal can be significant. What is the answer? Never leavetransitional planning to the last minute. A goal like retirement should include a five year transition ofyour investments to more conservative positioning in bonds in order to smooth the volatility of a stockmarket correction occurring at an inopportune time.

5 But should you try to hold a Stock for 30 years according to the old buy and hold style? Possibly, butit should be couched with some additional risk management steps as well: own at least twentystocks or buy indexed investments (dozens of stocks together in a bundle) which we will talk moreabout in this article, trim off profits occasionally (perhaps when you earn 15%) and reinvest the moneyand lastly, know what you own and stay in tune with the news about your products. Is It Too Dangerous to Buy Individual stocks ?In the last five years, many Canadians fed up with mutual funds decided that buying individual stocks was a better way to invest.

6 Lackof transparency in mutual funds, high costs and possibly poor performance triggered a steady move by investors to preferring blue chipCanadian and global stocks companies like CIBC, Suncor, Teck Cominco, Potash Corp., Sunlife and many more. But is buying stocksa better way to go? Let s examine some results from the last year:CIBC many investors felt that the Canadian banks were a no lose situation in the last decade of Investing . With all five majorbanks down significantly in the last year, led by CIBC at -41% return on a one year basis ending November 13, 20081, this hardlyfeels like a low risk investment.

7 Exposure to bad loans on the books at CIBC has sunk the Stock . This is a business risk of thecompany that you could not have found out in advance. Even today we wonder if they have more write-offs to come that could dropthe price even further. How can you trust any business that doesn t provide details of what they own? In one form or another, mostor all corporations may lack transparency in their business model that could sideswipe you one day. Maybe now, maybe twentyyears from now. Suncor the darling of the oil sands boom has fallen from $70 / share in the summer of 2008 to only $24/share in November this case, the fear of recession leads investors to believe less oil will be necessary to run the world and this caused the price of oilto dive which has created fears that the development of the tar sands is now too costly.

8 Six months ago this oil development wasgoing to save the world and the oil reserves in the ground may still be one of the largest deposits on earth. Investors in this bluechip, trendy business would have been financially devastated if you invested much of your savings in this one Stock . Remember thepromise of $200 / barrel oil in June 2008? What happened? Teck Cominco Canada s largest independent mining company had more than billion dollars of profit in it s most recent businessyear3. On a one year basis this Stock has now fallen 83% for the period ending November 13, 20084.

9 In this case, falling prices forgold, copper and other commodities has left investors speculating about the company s ability to pay off the purchase of FordingCoal, a company they bought recently. This combination of a business investment coupled by the record fall of commodity pricesout of the blue now threatens the very survival of one of Canada s mining jewels another blue chip company that investors wouldhave thought as a guaranteed winner only six months ago. Potash Corp you could not read a newspaper in the first six months of 2008 without hearing how the world was running out offood and everyone needed to own shares in this fertilizer manufacturer based in Saskatchewan.

10 For a while, this Stock even had thelargest Market capitalization in the TSX Stock Market exchange. How the mighty have fallen: after reaching $246 /share in June2008 it now hovers around $90 / share5. Was this a case of the newspapers pumping another fad that blew up after investorsbought in? Possibly, but it is also shows the dangers of buying another individual Stock that appeared to be a sure thing. Even some of the strongest businesses can be threatened. Sun Life one of Canada s largest insurance companies sideswiped investors in September 2008 with the last minute announce-ment that they owned hundreds of millions of dollars in the now bankrupt Lehman Brothers and Washington Mutual financial firms inthe US.