Gary's Comments

The whole world waits while politicians and regulators are locked away trying to come up with a solution for the USA's and Europe's financial system problems. The USA's problems have become the rest of the world's problems manifested through stock markets the world over plunging over the last 15 months or so.

This is what it has come to - government yet again required to rescue people from themselves. After the rescue, government will probably legislate in an effort to prevent people causing the same financial hurt that they have caused this time around. When will it stop? When human beings collectively find a way to overcome greed, ego and selfishness. I'm afraid that the answer is not external and is not to be found in governments and regulators. If you accept that they can't provide a long term answer then don't blame them now either.

It will happen again and whilst the cause (greed, ego and selfishness) will be the same, the symptoms will be different. There is a good chance that the symptoms may not even exist right now like CDOs didn't exist in 1987 when markets fell by 50%.

Until greed, ego and selfishness can be overcome collectively, investors need to find a way individually to protect themselves from systemic financial collapse caused by the powerful collective energy from these negative emotions. In the first place we individually need to overcome greed, ego and selfishness. Readers of this Active Investor that justify these emotions as good and necessary need to expand their research and thinking to consider other truths otherwise their losses at some stage will be too large from which to ever recover. Like Lehman Brothers and many others including 100's of hedge funds, 10's of banks and 1000's of investors!

Secondly, gain knowledge about and experience with leveraged instruments or just stay away from them altogether. Not being able to handle leverage is one of the biggest reasons that investors, institutional, professional or otherwise, lose beyond the point of recovery. Thirdly, establish right now a systematic, rigorous and mechanical method for achieving two things:
1. Cutting out of losing positions and holding profitable positions open until they also start falling and then exiting them, thereby locking in a profit.
2. Minimising exposure to the market when it is falling and maximising exposure when it is rising.

This last 15 or so months has provided circumstances from which we all can learn such that we can minimise drawdown when a similar downturn occurs in the future. However, the circumstances on their own are not enough, they needed to be experienced meaning that your needed to have had exposure to the market during the circumstances. If you did then you will be better prepared next time if you crystalise your thoughts now into strategies for handling the next downturn.

We may not be at the bottom yet but there appears to be more upside from here than downside.

Overseas Markets Report -

Commodities

The S&P500 was down over the last week but relatively speaking it has held up very well considering that the USA financial system is in its worst state since 1932 when the S&P500 was down 86% from its 1929 peak and government took measures to instill confidence and liquidity into the financial system. Sound familiar?