In these days, seeing stock market indices who almost hit rock bottom, is a common sight, as in the case of the Dow 30 (The Dow Jones Industrial Average) who is roughly separated by 2,000 points between the value of the index today and a once proud Dow Jones a year ago. Back then, no one was so sure, that the stock market in particular and world economy in general were on the brink of a never seen before crisis, at least for those who were born after 1929 Market Bottom.
Learning From The Crisis
The root of all evil, can be traced back to October 2007 roughly, with a market slowly declining from a record height, influenced by problems associated with way-to-many delinquencies and foreclosures(forced and caused by mortgage borrowers). Then came the near collapse of titanic companies including the American International Group, Fannie Mae and Freddie Mac. Chapter 11: Next to follow, was the horrific bankruptcy of the Lehman Brothers, rattling an already stressed market and leading panicked investors to invest in U.S. Treasury Bonds, assuming it a safe haven. Bonds Buzz, Piggy Bank frenzy call it what you will. This mega chain of events (any many more not mentioned) totaled to 30$ trillion losses.
Nevertheless, the last few months represent one the biggest bull markets in history, with increasing investor confidence and an overall expectation to gain future profits. We can see examples of this in majorcomebacks in the U.S. stock exchange as indices such as the aforementioned Dow and the NASDAQ Composite (all common stocks listed on the market) that have risen by 45% and 60% accordingly. Sometimes good does come out of bad, fortunately for some investors. One can say that as amazing the market’s plunge is its rise, beating chilling predictions of the end of all there is.
Defying all odds, the market has eventually sustained the impact and some say there are signs that the worst is behind us and a recovery is well under way, but tell that to the ones who lost their jobs, businesses, and for the lots who will never those retirement dreams. However, the question which still remains is What have we learned?
- Diversification isn’t always the wise play, sometimes spreading money around doesn’t guarantee more safety. There is no need to abandon this risk management strategy, but to acknowledge its boundaries.
- Markets are symbiotic, when one market begins to fall other markets are influenced. When investors try pulling any money they can salvage from foreign stocks, even classical havens are affected as a result and can experience a bumpy ride. Therefore, we must understand every choice we make, taking time to realize all its aspects as even the sharpest knife in the drawer can become dull when experiencing with confusing investments. With the help of Serious Games, one may be trained to avert and stay clear of some risky investments.
- “Liquidate” your portfolio, private Investors must understand not only the ups, but the downs of their holdings. Make sure, your portfolio is liquid to the certain amount you need it to be, else it will liquidate you. Keep in mind, a “nice” portion of the mistakes made were caused by investors who simply thought their investments were more liquid, and they can exit any time they want.
- The big brother’s contribution. Sometimes the government does work, go figure. The combative measures taken by the public servants may have helped to avoid a much bigger crisis.
- The worst case scenario. Don’t be blinded by shiny glitter of safe-havens. Don’t rush into, “promised” profits being confident you can’t lose, investors who got caught in real estate adventures thinking they will never drop in national extent needless to say a global one, eventually ended up with nothing when the bubble popped.
- No one should be that big. We simply can’t allow having more of those too big to fail companies, meaning: companies who are so big that incase they fall their collapse will cause an economic vacuum. Firms like the Lehman Brothers and Fannie Mae and Freddie Mac had been criticized for years for growing too big and carrying to many debts around. Watch out for current growing megalomaniacs such as Goldman Sachs group and Morgan Chase.
What does that leave us with? Yet another question of whether and how hard inflation and other trouble makers are going to hit. That’s why it is so important to learn from the ongoing crisis and these conclusions, for bailing in time from future made mistakes. Furthermore, learning along with the CEO game can help one analyze the complexity and outcomes of his investments, watching out for issues revolving market interlocks (symbiotic relations), worst case scenarios and liquidity as discussed above. Nevertheless, keep in mind that not all is blue; like I have already pointed out in this article sometimes (some say always) good comes out of bad, so look out for opportunities as they may rise along the way.
The CEO Game.
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