Depression in Economy? No Reason to Get Depressed by Richie John Pais - Mangalore December 27, 2008 So much has been said and written about the recent turmoil in the world economy. Many analysts have likened the present conditions to the beginning of the great depression of 1930's in the USA. Will we have another depression? Well, nobody knows the real answer. It can only be a slowdown or can be a recession. Nobody can surely say that it is a depression. (Slowdown recession and depression are all the slumps in the growth in the GDP measured by the magnitude of the problem. The impact on the economy is measured using different parameters like changes in inflation, job cuts, and industrial output etc). Slowdown is a slight change while recession is much greater and lasts much longer and the depression is always a negative growth and may last for years. Where are we? We have definitely entered into a slowdown state. Will we go to the recession from here? More likely. To come to a conclusion that we have reached recession, we need to analyze the data of at least two quarters. It is only a quarter since we experienced the first earthquake of problems. More aftershocks are expected. Governments all over the world have tried their best to bail out the companies, banks and other institutions which were the victims of the slowdown and are trying to infuse confidence in the system. While the western countries were most affected, the impact is felt everywhere. Since we live in a global village, we can not claim that we are isolated. Western countries like USA, Germany, and England have already reported negative growth in the GDP. Japan too has joined the bandwagon. England has been the worst affected, where more than 4000 companies have reportedly gone bust. India so far has managed to hold its head high with the projected growth of 7% looking almost possible though it can not sustain the growth of above 9% attained in the past three years. 2% less growth than the previous years may not be bad in the growth at all but can be said as one of the best in the world, taking into consideration the present conditions in the world economy. (Note IMF, CRISIL and some other agencies have all projected a growth above 7% for India for the current financial year and slightly lower growth for the year 2008-2009). What went wrong? So many people have lost their money in the recent past. I have myself seen a number of them who have lost and now live under miserable conditions. Most of the people in our region have lost money either in commodity trading or in stock markets. Some of them also have lost in property trading. Since the impact on the properties is very slow and can only be felt after one or two quarters, property dealers have started to feel the pinch now. They are certain that they are about to make losses since it will be very difficult to sell the property at a profit in the coming months. We were in a boom. We were promised hefty returns in most of the asset classes. They say 'every person is a king in emerging markets'. Any fool could have made money then. People instead of diversifying the portfolios invested in chosen asset classes as if they are experts in that field. A person learnt the 'art' of stock trading in the span of a few days, came to the conclusion that he is a 'master' in that field and invested all his money in stocks. He made profits occasionally (made losses too, but ignored that part) and believed that forever the market will favour him. The same happened in commodity trading and properties. They booked lands worth Rs.10 lac by advancing Rs. 1 lac, sold the same for Rs. 12 lac, before registration. Hence made a profit of two lac on an investment of one lac rupees (whopping 200%). They kept on doing the same for a period of time, increased the portfolio, bought cars and all luxuries on earth. Then suddenly came a point where they realized that they cannot sell the property at an expected profit. By then most or all of their investments were locked in. They could not come out. So it was over exposure which resulted in losses. Any 'expert' if at all he is an expert, should have known that any asset class can not give drastically higher returns than other asset classes over a very long period of time. Always in a shorter period, the same asset classes give more returns but marginally. In the past one year, gold has been the only commodity that has managed to give more returns than the other asset classes. Where will we go from here? There is no point in blaming history. If you keep on reflecting on your mistakes you will not reach anywhere. Of course we need to analyze what went wrong with our portfolio. It will obviously help us to look differently in the future and manage our portfolio more prudently. But are you analyzing the past that way? I doubt it... because when you have made heavy losses you tend to memorize the past events with a sense of 'guilt' 'I could have done this way' 'I should have come out in August 2008' 'I should have invested at least 20% in gold' , sort of feelings keep on disturbing you. Mind you, worse is yet to come, irrespective of whether the market improves or not. That is, your sub-conscious mind will start realizing the impact much later, if you do not do the 'repairing act' now. So get ready to do something about it right now. Every boom or recession produces millionaires and paupers. It throws out some people from the system (speculators first) and gives chances to others to enter the market. For eg, a person who was a millionaire and invested Rs.50 lac in the stock market, has lost most of his money and has become virtually a pauper. A person who has never invested a single penny in the market can enter the market systematically now and even if he gets a return of 15% in a year from the stocks, he is on the path of becoming a millionaire in a few years from now. People who have never bought property may find this is the right time to do so. But, if the thought that you have been completely thrown out from the market comes to you, I am really worried. Please take it as a temporary setback. You can always come back. One setback can destroy many people (it has happened to many people). But, you need not be one of this 'many'. I believe that this setback should be an eye-opener for you. Not only one, but even after so many setbacks you can repair the damage and aspire to be a millionaire. Is there a way out? There is not only one but many ways out. It takes time and energy to know which the best among them are. I do not say this just to instill confidence in you. But it is a fact of life. But sometimes in the beginning, you feel that there is no way out and the doors are closed. But after some time, you will feel that there are so many of them. Then what makes you close your eyes to the fact? May be right now, you are in constant agony. That does not allow you to think much about the future, but only brings you back to the past. But if anything allows going back to the past again and again, all the ways ahead will be closed. You will not only destroy your financial health which is already bad, but your physical and emotional healths too are bound to be destroyed. Remember: your financial health is directly linked to your physical and emotional health. Consequences: The consequences are mainly of three types, as listed below. It can be one, two or all three of them. a) Monetary b) Physical & c) Psychological Firstly you are not what you were financially a few months back. You are poorer than before. As said earlier, you will most of the time think about the past. That will destroy your daily schedule. You will loose interest in most or all of the routine things. You will feel some uneasiness in your body as well in mind. People do not so much complain about psychological problems they are facing but always complain about physical changes in the body, which are the direct result of the psychological and other problems. You will not realize them consciously. Ultimately this will lead to real health problems. There are chances of you suffering from panic attacks, anxiety disorders, losing interest in everything, unnecessary anger, short temper, apprehensions etc. Even suicidal tendency can come to you as it has happened to many people. And if you become a victim of these problems you will never get time and energy to get up to repair the damage done to your finances, you will remain in the ditch forever. How to come out? Unfortunately financial counselling is still in infancy stage in India or should I say, does not exist at all here. A financial planner in most of the cases sells products and is very much interested in his sales only. A general counsellor seldom knows about finance. May I suggest some solutions briefly? Physical Exercise: Take only 10 steps today if you are not accustomed to exercise. You will improve the steps from tomorrow. Good food habits: Have good food. A good nutrition book or a dietician will tell you what it takes to have a healthy body and mind. And always drink plenty of water. Sharing your thought with others: The benefits are many. You will realize them yourselves. Sharing your thoughts with everybody may not be useful but can aggravate your problems. Share them with the right people. A person who had lost all his money in the market recently, came to me and said he was selling his house worth Rs 32 lac. But, after glancing at his problems, I asked him to mortgage his property. Because what he needed urgently was only two lac rupees.. He would not have managed to sell his house at a good price under the current circumstances. Moreover, he was expecting some inflows from his children. My suggestion was a small idea which could also have come to him, if he had given a serious thought. But sometimes these ideas come from others in the form of 'insights'. Keeping away from bad habits: Increasing the number of drinks or smokes can give you a sort of fast relief but it will only ruin you in the long run. Tighten your belt: Do not wait for tomorrow. Start cost cutting exercise right now. A few rupees saved now are rupees earned. Breathing exercise/Yoga: A deep breath, whenever negative thought about the past comes to you can relieve you and help you to manage the problems temporarily. Yoga can give you peace of mind. Religion: Money does not have any religion. But religion has many Gods who always offer solace in distress. Bible, Koran, Bhagavad-Gita, Torah and all holy books have solutions for people who are in problems. Psychiatric and Physicians help: Normally people do not go to a psychiatrist thinking only 'mad' people visit him. But a visit can give you many benefits. Also consult a physician to rule out physical problems in you. Joining clubs or cultivating new habits: May not give you monetary rewards but will take you into a different world where you have never ventured before. Change in the portfolio: Should you remain invested or exit? Only good financial analyst/planner can help to repair the damage done to your portfolio. Should you immediately get out of the market or hold on for some time, will be decided taking into consideration your age, risk appetite, immediate financial needs, expected future cash flows etc. and some other factors. Your problems are different from others as much as you are unique from others. Same treatment for all types of financial problems will not help. These are some of the suggestions which will help you. You may not need all of these. But need at least a few. Please try them and get the results. The hidden opportunities: Every problem in life brings in more opportunities. I have experienced it myself. The turmoil in the African economy as a result of 9/11 mishap gave me opportunities to venture into agriculture in India, in which I was a complete novice .I moved to different businesses. I did not succeed in all. I made losses in most of them. Anyway my intention in business was not only to make money. I can not say I have regained everything. I lost. But I can proudly say that I am still in the race. I can tell people now how to lose money in different types of businesses which can help them refrain from doing mistakes. I can say about many great personalities who were nothing in the beginning but became great after they faced problems like you and me are facing. Things will change: Things will not remain the same forever. They will change. After the crash of markets, you might have felt worse is over. But again and again when you watch television you find all the stocks in the red. This continues for few days with some stocks in the green. That does boost your spirit up. Then a newsflash disturbs you about terrorists having a feast somewhere. Again you cry. Negative things will not end. When you go by history, you will find that economic slumps produce more criminals and terrorists. They will do their jobs no matter you want the wrong things transpire or not. We can not control the system. But we can live with all these problems if we learn to adjust a few things. Wish you the best. You will be one of the survivors of the recent mayhem. Fittest will always survive. Views expressed in this article are those of Richie John Pais, a Mangalore based entrepreneur, Social activist and Financial Counsellor. DISCLAIMER: Notice : This e-mail and any attachments may contain information which is confidential to the addressee and may also be privileged. If you are not the intended recipient of this e-mail, you may not copy, forward, disclose or otherwise use it in any way whatsoever. If you have received this e-mail by mistake, please e-mail the sender by replying to this message, and deleting the original and any printout thereof. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "BETTER PERSONALITY GROUP" group. 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