For the ones that have played the markets in the last 5-8days, we have seen assets get wiped clean from our portfolios, some have lost 10% of a well diversified portfolio (which is good) while the ones that made riskier moves are so far on the hook for losses that range from 25-50+% of our holdings. These have not been seen in our life times and probably will never repeat itself again.

When will this fall end? Its hard to say what new policy is required for this falling knife to finally hit the floor. A global rate cut didnt do it, nor has a ban on short selling. One thing is clear, for those that have been waiting to buy some of the biggest and strongest stocks at low prices have come close and are approaching to the apex of this crisis.

Stocks

A few weeks back, I emphasized selling holdings in AAPL, RIMM, POT, GE, and all financial holdings. Most agreed while others have opted to remain in the plane as its falling towards the ground. Those that sold, like I will say again, have got out at a HIGHER price and are able to repurchase again the holding at a lower price and not only position themselves for a better gain % wise but also to offset any future gains with a tax credit on the capitals gains…point in case, I got into RIMM at 100/share, sold at a loss at 82 and got back in at 56…with this tactic, I only have to regain upto $86/share before the rest is profit while another person that decides to stick it thru is going to have to wait for the stock to go up almost 100%…

Does this make that example clear? I hope so. I dont know at this point if any specific holding needs to be sold nor can I be sure if I got into RIMM at the right price. On fundamentals, I am doing the right thing for my long positions by leveraging at a lower dollar cost average. Its going to take time for some of those big stocks to get back to the levels they were at, it may be years, so if you have no plans and are willing to hold for some time, I know things will improve.

Mutual Funds

Second thing that has been hit by more of you guys than individual stocks has been the mutual funds, I really want to emphasize on thing, UNTIL they are sold, you have NOT lost money…many have been wondering what do to…if your on automatic deposits, its good because with each contribution you are able to lower your average price/share….so as the market goes down, you are are buying more shares at a lower price and thereby taking advantage of the discounted prices that are not going to be here after the rally begins. Unless you absolutely need the funds in your mutual account, I would not sell. What I would say is, start adding money into your money market fund…this can allow you to build a liquid reserve which you can tap into once the market starts to rally…at that time, you can add that pool of money into the funds and redeem gains faster and lower the margin of loss.

So in a nutshell, if you are in automatic payroll type deductions where your mutual funds are purchased weekly, they are are in a good position to average down $ for $ compared to those holding the bag on some of the stocks.

Where do I go from here?

Well the stock market is going to change, its a given. The government is going to put in new regulations and once the paper market and overnight rates for inter-bank exchange drops and starts this rally, its going to be hard to get in low or hedge as easily as we were able to for the last few years.

Getting credit is going to be harder, so if your looking to get a house, your going to need to have solid credit on both sides of the border and down payments are going to be standard. There isnt going to be the ease of getting loans/LOCs/Mortgages that we saw for the longest time. Maintain your credit standing as its going to be looked at more than ever. House prices are going to fall so if your planning on getting into the market, wait another 4-6months to see what the economic climate is like. Currently in Toronto, prices are DOWN 3% which is significant and is also notable that this 3% drop was before this current market crash.

Last thoughts:

So gas is cheaper now! You might think this is great, you can fill your Land Rover or any other car with less pain…but on a bigger picture, when a price of a commodity drops while supply is weakening, its only answer is due to the global halt. Trading and economic activity in the G7, the BRIC nations and many other places are literally standing still…so you might save a few dollars now, but its going to cost you later when jobs are cut and lending rates rise. Canada is going to see a slower but similar problem in the job market as seen in the US where many of the larger cities have seen large spending cuts and cut backs. Hiring freezes are going to mean some have to put up with their current jobs, or work harder to keep them. Its just like how the job market was in the 80′s.

Its hard to digest the changes that have taken place. Its stressing to watch money disappear on a daily basis. But its not the end of the world. This market is looking for a sustainable bottom and I see that as being in the 700′s for the S&P. I hope I”m wrong and the rally happens sooner. But with all the fundamentals and all the global clues that are here, its not pointing to anything else.

Sorry its not in the usual format and there might be spelling mistakes. I hope all the best in their investing goals. This is part of the game we opted to play. The strong will survive and I hope my insight adds to your goals.

If there are any follow up questions to this email, shoot them back to be and I will reply before market open Monday morning.

-Aman Bakshi MBA

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