Welcome Aboard

Welcome to the inaugural Parkside Weblog . .

Designed to complement our website, you now have a direct opportunity to catch up on breaking news, reproduced articles which reflect events happening right here and now, historical perspectives and some investment insight. We invite you to comment, both to us and to each other and we value your feed back!

What a mad month!
The crash of the past 2 weeks and the panic compounded by de-leveraging has been one of the most disturbing things ever witnessed by most investors. Friday down 8%, the week down 18%. Similar figures worldwide (not helped by the mid-week lifting of short-selling restrictions in the US). Fridays +10% intraday volatility in the US and the VIX (volatility Index) at a record 70 points may be a turning point?

Australia cut rates by 1% (0.8% passed on, which with the recent 0.2% cut earlier in October, a positive for borrowers and mortgages) led the northern hemisphere cutting by 0.5%. The A$ collapse to mid-60’s (down approx 30% from recent highs) is some offset to global share investments.

We now need some serious people making serious decisions re this serious situation.
World leaders met over the weekend – but with little firm action delivered. We need to see a boost to liquidity in the credit markets as well as the rebuilding of confidence (investor, counterparty and customer).

Sunday’s Government announcement that ALL bank deposits will be guaranteed for 3 year (Including Macquarie Cash Management accounts as Macquarie will now only invest in cash secure assets) is the first sign of reassurance to investors and households. This will apply to all depositors (individuals and corporate’s), as well as to all credit unions and buildings societies. They will also guarantee bank borrowings from global credit markets as well as extend funds to the secondary market for home loans.

We expect European and US governments to announce similar commitments following agreement to take ‘decisive’ and ‘urgent’ action before the markets opened last Monday, or at the latest this coming week. We await firm action, as we have only heard vague principles so far.

What we need to see?

The markets convinced of a package of guarantees, and
A narrowing of credit market spreads, and
A rebuilding of confidence among investors

The Australian share market was up around 5% on Monday in response to the
Government’s commitment. Early indications from futures markets are for positive
moves in overseas markets.

Our advice:
Avoid knee-jerk reactions to the current crisis. In terms of financial crises, this is significant and unsettling. But as we have been saying – ultimately – it will pass.
Markets will recover. In the meantime ensure that your finances and investments are positioned to gain from the recovery when it occurs. It’s important to remember the 7 Deadly Sins of investing and to stick to your plan. They are:

Instant gratification – or choosing the immediate pay-off over a larger
reward down the track.
Naïve diversification – you know it’s unwise to put
all your eggs in one basket. But it is also foolhardy to sink money into
holdings that do not suit your individual risk profile or tolerance just so that
you can hold a ‘safe’ investment. This can be just as
dangerous.
Overconfidence – after five years of bull markets it can become
tempting to attribute your market success to your skills as an investor – our
skills as advisers - rather than a naturally occurring buoyant market. The share
market is never without its risks.
Belief persistence – a refusal to
acknowledge that a situation is not as you thought, despite compelling evidence.
Let’s face it, even we expected the markets to resume rising
earlier.
Overweight recent events – we all place much greater weight and
importance on what has just happened and our actions are guided by expectations
that those conditions will continue. Remember the returns of the past four years
exceeded all expectations.
Loss aversion – the impetus to avoid losing money
is greater than that to maximise wealth. This causes us to ignore opportunities
in challenging environments and times like the current.
Fear of regret – when you become paralysed with indecision for fear of making the wrong choice.

To avoid the above and preserve your wealth, you need to re-evaluate your plan to
ensure it is still appropriate to your goals and risk tolerance for the mid-
longer- term, and not the temporary market conditions.

Remain diversified and insure that your investment portfolio is suitable. Stay committed to your investment strategy, rather than chopping and changing based on the noise of the day. If possible, start trickling money into the markets (you will be buying more units at lower prices and when markets recover it will grow more quickly).

If you are drawing a pension or regular withdrawals – perhaps you could reduce
your payments in the short term to allow maximum exposure to recovering markets.
Some of you may be Centrelink pensioners or benefit recipients – or you may now qualify for benefits. Our staff are re-assessing all our clients positions to ensure that you will receive that maximum benefits possible. If you believe that you may benefit – please contact our office to ensure that your position is evaluated and re-assessed.
Most important of all – delay ‘gratification’. Probably the mother of all ‘sins’ in this erratic market climate is to give into fear and panic and sell out – that applies more-so now that the values have fallen so far.

If you have any questions – please do not hesitate to contact your adviser or our office for assistance and assurance.

Take our poll in the sidebar and let us know what you think about whether the markets have bottomed out or not!