Thursday, September 18, 2008

the credit crisis of 2008

Wow, what an astonishing week we have seen in the financial markets! This has been an unprecedented experience for me as I've never seen anything like these type of stock market declines. That is not really saying much though as I have only been investing for about five years. It seems that every corner of space that you could possibly house your money is filled with instability, fear, and panic. The S&P 500 index got down to May, 2005 levels yesterday.

What have I been doing during this massive rout of stocks? Well, just what any responsible, long term dividend investor that is short on funds should be doing. NOTHING. It is beginning to look like we are going through one of those time periods in the market that will separate the strong willed investor from the flighty ones. We often hear and read about long term investing being about ignoring equity valuations and focusing on buying good companies that pay increasing dividends. It is easy to talk about this as being a responsible, sound long term strategy when times are good or even mediocre; whereas when you enter into a period like we are now, it becomes easier to see why the wheat often becomes separated from the chaff. Short term money has no place in a market like this one...

So if stocks are off so much, and I'm focused on the long term, why haven't I been buying?
Well, this one is pretty simple. One of those emergencies, that many of us have dedicated funds for, has cropped up. What we were hoping was as small problem with our gas furnace turned out to be a larger one, and considering the age of the furnace the best decision was to replace it. With my wife being on maternity leave, this was not the most opportune time to replace our home heating source. Here's hoping this sell off goes deeper and last longer than 2008 does, so that I have a chance to buy stocks at some sale prices.

When will this free fall end? Obviously this credit crisis is far worse than most people had anticipated and will likely have some legs as well. In my opinion, I agree with those who have said that this will not end until home prices in the U.S. stop going down. I believe this is the key to repairing most the damage that exists currently, as most of it stemmed from taking risks tied to real estate values. That being said, the catch is that stock markets will stop going down well before it is entirely evident that housing values have stopped declining. Until then, my dividend stream and its potential for mid-long term growth is still in tact, life is good.


Sarlock said...

The pain has only begun, unfortunately. The ripple effects of the past 3 days (and the continued decline in real estate values) will take months to start to work their way through the economy, and this isn't even taking in to account the potential for more financial disaster.
A couple of years ago, I hedged my financial company investments with a flip investment in gold/silver. Working out well so far.

Anonymous said...

Sorry to hear about your unexpected expense. How about a post like " this is what I wish I could buy now"