The key to investment survival lately has been wide diversification: all kinds of bonds, generic stocks and inflation stocks, commodities, gold/currencies, cash. Almost of the funds and stocks I have discussed here I own and am holding.
The problem right now in prognosticating, as opposed to just surviving, is that WE DON'T KNOW. Normally, technical market analysis, sentiment analysis, and astute economic analysis are extremely important. In a financial crisis when banks don't trust each other enough to cross-lend overnight, none of the "usual" matters. We've seen the dramatic intra-day moves in many asset classses that clearly are due to massive liquidations of hedge funds and other large investors. Banks are calling in loans in finance far more than in housing. "Sorry Mr Z but your $2 billion loan we made to you which you leveraged up 15 times in mortgages will NOT be rolled over today. Sell and/or die. Have a nice day."
If there are twenty more Bear Stearns lined up to fail and bail, and insiders know that but we don't, all the technical and sentiment and economic analysis in the world won't give us insights on how to capitalize on it. It's important to understand how the FED works and why. It's important to know about the "rich man's panic" 0f 1907 and about 1987. This is not about a normal recession which we may or may not yet actually be in. If it's beyond us to grasp it, then we just have to sit tight and not do stupid things which could make it worse. Those who are done in in this crisis are having to sell both their bad stuff and their good stuff, more or less at the same time. That's why it's so volatile.
If you had or have a decent and diversified portfolio, you might be better off doing nothing rather than selling the wrong thing or selling everything. Some times it's better to lose ten percent and have it come back rather than to sell out everything and not come back. This is just my opinion, and I work only for myself. I'm still ahead on the year a quite modest amount, even after this brutal day today. I consider that a major victory!
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