In terms of my personal finances, 2008 is rapidly developing into the worst since the Asian crisis. Commodities and equities have all shown negative returns. Currency movements have been negative. The income from my job has declined about 11% since April and is expected to decline further. My overseas properties have fallen somewhere between 10-15% (est) over the last 12 months.
The only positive news is that mortgagee values of Hong Kong properties (which are far and away our biggest asset class) still stand at higher levels than at the beginning of the year. Given that transaction volumes have fallen sharply and people are beginning to accept both (i) that the global financial crisis and (ii) the slowing of the PRC economy are going to have some impact in Hong Kong, it is hard to see property prices staying at current levels.
My decision making has been mixed. Accumulating cash has been a good call (in spite of the corrosive effect of inflation) as was cancelling my monthly contributions to two small cap funds. Unfortunately, I made far too many investments in falling markets, all of which have shown losses this year.
In short, my emotional capital is currently at very low levels and my confidence both in financial markets and my ability to make the correct decisions is also low.
How to restore that emotional capital? There are several obvious steps:
1. stop making decisions for a time. I have been through three severe economic contractions during my adult life. In all three cases, superb opportunities have been presented .... for those who are both patient enough not to invest too soon and brave enough to invest before it is recognised that the crisis is over. I should impose a moratorium on new investments for a few months. I should, but I suspect that will be a hard resolution to keep;
2. review current investments. Previous experience has shown that quality assets will recover their value. It is the more marginal assets that are at risk of loosing all their value. I have already taken losses on silver and exited the Lyxor commodities ETF at a modest profit. No decisions have been taken regarding my remaining investments;
3. consider job security. My income has fallen and is expected to fall further. There is not much I can do about it. Job security is reasonable and the combination of a long notice period and a tail on my income, gives me a degree of security that is good by private sector standards .... but not assured;
4. focus on the positive. Recessions require less time in the office and allow more time for other things. I'm still waiting for the work loads to fall off a bit, but actually looking forward to having less to do in the office (and a fall in income is an acceptable price to pay for a better work life balance);
5. pay off some debts. I have no difficulty in carrying my mortgages even during a recession. However, if I am not making new investments of any substance for some time, repaying a mortgage or two is an acceptable alternative to holding cash;
6.catch up on the backlog. I have a very long list of things that need to get done (both at work and outside it) or which I want to do. Now is a good time to make a start on those projects (and hopefully finish a few). The sense of accomplishment will be good antidote for the general feeling of negativity.