Foreseeing and preparing for the next fiscal meltdown.

[Baa_Baa]

LOL BaaBoy its easy to find reasons to worry ... these types of media farts are designed to feed into peoples fears and insecurities. Bad news is always more interesting than good news. Just say no to reading them and free yourself. Any group of solid dividend earners will set your mind at rest and calm the fevered imagination. I find if I go looking for reasons to be afraid of being in the share market its way too easy to get overwhelmed with "expert" analysis and "guru" insiders. There is a constant and never ending parade of these guys...all will be in the end selling or trying to sell something..the magical and miraculous concept of providing YOU and others the exclusive benefit of their supernatural foresight that can be provided if you sign up for their newsletter or membership.

Lol, who's afraid Birboy? Not me, I just like to keep an eye on the big picture. One part of the big picture is debt, we all know that, another key part is liquidity and velocity of money. That article caught my eye because of the similarities in capital flow around the time of the GFC, as to now.

As an aside, can you name a time in history when the NZX collapsed (capital) all of it's own accord? How about the times when NZX collapsed (capital) due solely to external markets collapsing and sentiment flowing into the NZX? Which occurred more often and which had the greatest effects? For investors who have the wherewithal and notion to manage capital, these are things worth keeping an eye on.

[BIRMANBOY]

BaaBaa you are right in saying that markets can collapse (as well as experience unjustified rises) under pressure from market sentiment. A constant and never ending ( and always growing) mass of investors large and small all trying and or believing they can outthink, outmanoeuvre and stay one step ahead of "the rest". This is the ultimate fail point....since its impossible to know what we ourselves will do tomorrow or the next day etc..how can it be possible to know what the "market" will do? And yet investors are endlessly inventive and hard working in attempting to discover or purchase the "holy grail" i.e. which formulas or systems will allow them to get an advantage. So we have the sub-heading "preserving Capital" come up periodically. Perfectly sensible and theory tells us if we take our capital out of the market when or before it collapses and re-invest when it recovers we will be better off than someone who just leaves it in the market and watches it dropping month by month. Simple in theory but much harder in real life. False signals, dead cat bounces, bad timing, sudden reversals just make this an impossible task in my opinion. Every time you exit to preserve capital you also run the risk of making an ill-timed exit (incurring brokerage charges, possible loss of dividend, inability to re-enter because of rising price..etc. etc.) My view is that most people would be unlikely to beat the averages. Now as a dividend focussed investor I also run the risk of losing my income if I'm out of the market. Obviously if the investor is operating as a trader this is less of an issue in that divie producers are probably not on the horizon so much and I can see the desire and necessity for capital retention. Understanding that income is derived predominantly from trading is the driver that forces traders to preserve capital and attempt to get an edge somehow in understanding market sentiment. So my somewhat jaundiced view is that that traders or wanna be traders are up against it big time. Dividend investors on the other hand mostly look at capital as being the seed that has been planted and by judicial watering (buying in low points), and an occasional weeding out of non performers, the returns will take care of themselves. Companies don't pay dividends based on SP , they pay based on earnings. So its immaterial what the SP does since the normal method involves letting the capital sit. Obviously at some point the capital will need to be extracted presumably but with a lengthy period of buying judiciously hopefully the average buy in price will be such that there is no capital loss. So if you are a trader I don't rate "your" chances of "managing your capital" very highly. As a dividend investor this necessity is removed.....which ultimately makes life easier. Its always tempting to look at previous market collapses and try and draw analogies to current situation but I'm not sure that this is valid any more. Why? Share markets now are much, much larger than previously and the amount of capital involved is huge and because of inter connectivity cash is not only larger but coming from new economies. So money exiting markets will be for shorter periods and volatility will be high. Where else can you put cash? Worldwide banks and call a/cs are paying 2-3 or less %. This will keep pressure on money flowing into shares and keep the length of time out of market shorter.

Lol, who's afraid Birboy? Not me, I just like to keep an eye on the big picture. One part of the big picture is debt, we all know that, another key part is liquidity and velocity of money. That article caught my eye because of the similarities in capital flow around the time of the GFC, as to now.

As an aside, can you name a time in history when the NZX collapsed (capital) all of it's own accord? How about the times when NZX collapsed (capital) due solely to external markets collapsing and sentiment flowing into the NZX? Which occurred more often and which had the greatest effects? For investors who have the wherewithal and notion to manage capital, these are things worth keeping an eye on.