Don't panic : long term stock market smooths short term volatility

Many economists and political leaders have said that the 2008 financial meltdown would not match the magnittude of the Great Depression. There was no social safety net and the benefit of learning the lessons from past mistakes then. Alas, tere is a tendency for many undergoing a crisis to overreact.

Just try not to panic

A long term market view often irons out the volatility of short-term events

by David Koch (Sun Herald newspaper print edition, 7 December 2008)

Extracts :

For all the wrong reasons 2008 will go down as a historic year but the chances are it won't be repeated next year. As it stands, history tells us next year is unlikely to be as disastrous - there could still be falls but not as bad. On average, 70 per cent of the the past 183 trading years have produced positive returns.
Despite the daily to monthly volatility of the markets, stepping back and taking an annual view smooths out the performance.
It is the most relevant view for most private investors because we tend to take a medium- to long-term view and invest in quality stocks. But it's human nature to be attracted to drama. So when there is a sharemarket plunge, we follow it day by day and get panicky when things continue to deteriorate. Markets reflect investor sentiment and psychology and become panicky when we become panicky. Try to break the cycle. Take an interest, of course, but keep it in perspective rather than get sucked into the drama.

We wish you a Merry Crisis