If you have lost wealth, don't lose patience
The good lesson to draw from the turbulence is to review and correct asset purchase decisions.
Published: Tue 25 Aug 2015, 12:00 AM
Last updated: Wed 26 Aug 2015, 10:31 AM
Shocked, rattled or running scared. Manic Monday for global stock markets was rife with all these emotions. Worldwide, including in the Gulf markets, trillions of dollars have been wiped out in less than two weeks. If you are not a stock investor, it's likely that your gold holdings are less valuable than what they were just a few months ago. And if that too isn't the case, it's likely that the value of your house is a bit lower today than it was a year ago. The point is that most means of wealth creation have suddenly stopped working-for the time being. At such times, which come and go frequently, patience not panic, pays off at the end.
First, understand why wealth erosion is happening. China just can't keep growing at the rate it did for nearly 20 years. The world has to come to terms with a slower growing China, just as it came to terms with slower pacing Japan in the 1990s and slowdown in east Asia afterwards. Sharp decline in prices of commodities, including oil, and Greece's economic woes added to the worsening prospects. All of these issues will take time to resolve.
Second, make a distinction between a notional loss and real loss. Price of a stock or gold or property may have fallen from its peak, but even the fallen price is likely to be higher than the price at which you purchased the asset. The real trouble starts when the price falls below the purchase price for majority of asset buyers. That situation is not anywhere in sight yet. We are not in a recession.
The good lesson to draw from the turbulence is to review and correct asset purchase decisions. As millions of Chinese stock investors now realise, they bought far too many assets based on tips and not research. Their expectations were unrealistic, not reasonable. If wisdom is permanent, losses will be temporary.