A member of the Champion Shares community asked me this recently on the discussion boards:

"I continue to follow your tips and value your insight - I must admit to being really scared sometimes not enough though to start selling even if I am on a huge paper loss. I comfort myself by refusing to mark to market - I keep saying am in this for the lt - I am adding CLIG and some big caps and dare I say even banks - that is real courage.

It will help though - to shae your your experience in servere bear markets from time - in times of severe volatility this will be a source of some comfort to some."

I thought I'd share my answer of this blog. Here it is:



Thanks for the note. Here are some thoughts:

* These are the worst market conditions I have experienced. For background, I am 37 and started buying individual shares around 1994/95. I have witnessed three downturns first-hand i) 1998, when shares fell 25% in three months caused by the economic collapse of Russian and a spectacular blowout of a US hedge fund; ii) 2000-03, the dotcom bust, when shares fell 50% from top to bottom, and iii) the 2007-? credit crunch.

* The 1998 slump was brutal for me. My portfolio was largely small-cap growth shares (based loosely on Jim Slater's Zulu Principle) and they were absolutely hammered. I had bought JJB Sports in 1995 and watched them five-bag in three years. I lost just about all those gains in the space of six months. I was distraught. But I maintained some composure. I thought the economy was not going downhill and put more money into JJB and other small-caps in early 1999. I think they all doubled in value in less than a year. That taught me three good lessons: markets go down :-), great buying opportunities can occur when markets collapse, and don't be afraid to lock in super profits when times are good.

(Footnote: I don't think JJB ever regained its 1998 high though and I am amazed it appears to be on the brink of going bust judging by the recent share-price action. Ten years ago JJB was a quality growth share rated highly by many commentators -- just goes to show how things can go wrong at individual businesses long term. That's lesson four)

* The 2000-2003 crash was not so bad to me. The carnage here was mostly limited to technology, media and telecom shares. I had been dubious about valuations for 'TMT's for some time before then and had little direct exposure to them. Many shares actually went up during the dotcom slump, notably 'old economy' shares such as tobacco, drinks, etc, as investors did an about turn and sought refuge in reliable dividends. You can see how I fared during this time through my old Qualiport articles. The portfolio performed relatively well in 2001 and 2002, when shares lost 17% and 25% respectively: http://www.fool.co.uk/qualiport/qualiportintro.aspx?terms=qu...

* There were always people ready to argue shares would fall further right at the bottom: http://boards.fool.co.uk/Message.asp?mid=7702990&sort=wh...
http://boards.fool.co.uk/Message.asp?mid=7791946

* It is always difficult to spot the bottom of the market (e.g. March 2003), even a month after the event. http://boards.fool.co.uk/Message.asp?mid=7828826&sort=wh...
http://boards.fool.co.uk/Message.asp?mid=7829291

* You know how I have performed during the 2007-? credit crunch through the CS scorecard. I have had some disasters, Jarvis, i-mate, Johnston Press etc, but at least I have avoided banks and builders. I am also pleased to have expressed some caution about the market (e.g. http://www.fool.co.uk/news/investing/investing-strategy/2007... and http://www.fool.co.uk/champion-shares/watchlist/article.aspx...) and tipped Personal Assets Trust in 2007. http://www.fool.co.uk/news/investing/investing-strategy/2007... If there is one regret I have, it was to take too much notice of the feedback on this board with the PAT tip. The punters wanted share tips, not stay-in-cash tips, and I obliged. At least now there is an ETF that shorts the market and an ETF that tracks cash. Next time the market looks toppy, I'll tip them.

* I think my 2008 tips have coped relatively well in this market. As at 8th October 2008, the average loss from my 24 tips this year is 13%*. That compares to an average loss from the All-Share of 21%*. Overall since the service started, the average CS tip is showing an 11%* loss versus a 13%* loss from the All-Share at 8th October 2008.

* This is the worst market since 1974, when shares fell 50%. So far we're down about 38% with the FTSE 100 at 4,000. Indeed 98 shares in the FTSE 100 have lost money this year. In short, everyone in shares has lost money this year and everyone in shares is in unchartered territory. I'm having to re-read up about the 70s crash. The best book I've found is mentioned in this article: http://www.fool.co.uk/news/Comment/2005/c050223c.htm I'd thoroughly recommend a copy if you can get hold of one.

* We're back to where we were in September 1996 -- twelve years of no capital gains! At March 2003 when the FTSE hit 3,287, investors were back to 1993 and suffered 'only' ten years of no capital gains.

* The bank bailouts and partial nationalisation of the clearers in particular are seismic events that I feel will have major repercussions on the banking and financial services sector for the next decade or two. Banking I feel will not be as profitable, dividends will be much lower and, barring HSBC, I doubt we'll ever see UK bank shares regain their highs.

* I'm sticking with cash-rich shares for CS. The portfolio is dominated with such shares for good reason and I am confident they can prove to be winners over time: http://www.fool.co.uk/news/investing/2008/09/24/cash-rich-ba.... I am sure customers and suppliers of companies now look closely at whose on the other end of the transaction and whether they will be able to provide payment or goods. Companies with proven leadership and cash-rich accounts will be favoured I think.

* Multibaggers: Potential multibaggers are out there right now waiting to be bought: http://www.fool.co.uk/news/investing/investing-strategy/2008.... After the bottom of the 2003 tech crash, the following shares all ten-bagged or more by the 2007 market peak: Charter, Ashtead, JKX Oil, Tarsus, Axon, Hyder Consulting, Manganese Bronze, WSP, SDL, SCi Entertainment, Xstrata, Hunting. I was buying the London Stock Exchange in the latter stages of 2002 for the Qualiport at about £3. The shares touched £20 last year. It can be done.

* Forced sellers: I think this market collapse has prompted a few forced sellers. Mr Tchenguiz (sp?) has lost £1b apparently by being forced to sell stakes in M&B and J Sainsbury and I am sure he is not alone in having to dump shares as banks call in their loans. In this sort of market, some people have to sell at any price. In addition, insurers must abide by capital ratios and the 2000-2003 downturn saw them as forced sellers as the market headed towards bottom. That could happen again.

* Pension timebomb: Pension deficits could prove a real headache. Equities are down and gilt yields are down, which means pensions assets are down but discounted future liabilities are up. In effect, pensions deficits will have widened and 2008 year-end pension statements will be bleak reading for many trustees I feel. With their new powers, trustees may be pushing for extra contributions to shore up their schemes. That's the last thing a hard-pressed company will want to hear. Should current market levels persist, I expect these pension issues could start to emerge early next year when the year-end accounts are being drawn up. You will note all my CS tips have little or no pension issues. That is not by luck.

* Oils and miners: They have been thumped of late. BHP, Kaz and the rest are on P/Es of 5 or less as the price of gold, copper and oil all go down the toilet. So much for super cycles, peak oil and all the rest of the 'new commodity era' guff. Could be worth a punt, but I am dubious oils and miners will lead the recovery. Techs never really recovered from the dotcom slump and miners have now had their years in the sun. Time now for something new to drive the market higher. I have tipped biotech as the next speculative mania, but it could be anything (bar commodities).

* The economy is in bad shape: House prices will certainly fall further. The 90s collapse saw the average home priced at 3x earnings at the bottom and 3x £30k now would see a £90k average price for a UK home. The current average is about £160k. I reckon the top-to-bottom fall for house prices could be 50%, with the resultant effect on the economy. Next year I think is going to be a disaster for indebted retailers, media and housebuilders and I feel big names will go bust in these areas before the crunch is resolved. In terms of their share prices, sure some may become spectacular recoveries, but most may muddle through and it will take a very long time, if ever, for them to recapture the market's trust (i.e. they will always look cheap).

* I'm still buying the market: I'm still contributing to my index tracker every month: http://www.fool.co.uk/news/investing/2008/10/08/the-market-s... I'm still contributing to my son's tracker as well. He's just five so I hope when he comes to retirement and looks back at his 2008 statement, he will be amazed at how low the market was now :-)

* Don't forget this bear market will end: http://www.fool.co.uk/champion-shares/updates/article.aspx?a... I sense capitulation must be near -- the FTSE 100 has lost 1,000 points in a week -- 20%! Hang in there. Good luck... and happy investing!

Foolish Best

Mayn

* Champion Shares returns are based on mid prices taken at the time of publication and include due dividends but exclude costs. FTSE All-Share returns are based on the FTSE All-Share total return index, which includes re-invested dividends and excludes costs, taken at the time of recommendation of the buy/sell advice.

Here's a eye-opening update from IG Holdings, the firm that owns spreadbetters IG Index.

http://fool.uk-wire.com/cgi-bin/articles/200809191335338673D.html

It says: "IG Group Holdings plc ('IG' or 'the Group') notes the introduction by the FSA of rules in relation to the shorting of certain financial stocks.

In the first quarter of this financial year (being the period 1 June 2008 to 31 August 2008), less than £150,000 of IG's total revenue of £53m resulted from clients shorting the 29 financial stocks which have been identified by the FSA. This low number reflects the long bias that clients have in single stock positions. More generally, in that quarter, approximately 23% of revenue related to single stock positions and approximately 3% of revenue related to positions (long and short) in the 29 financial stocks."

Blimey! So during the best market opportunity in years to short banks, it seems the punters (using IG at least) missed out badly. Indeed, late last year, I recall IG Index saying about 95% of its client positions were betting prices would go up. With the market about 17% down since then -- well, 'nuff said. Take a look at IG's accounts and you'll discover how the real winners from spreadbetting are the spreadbetting firms.

Here's an interesting HBOS bet from Paddy Power. Apparently you can have 6-1 for Andy Hornby, boss of HBOS, to be the next banking chief exec to quit/be sacked. If the takeover/rescue rumours of HBOS by Lloyds TSB or HSBC are true, I suppose Hornby would make an early exit.

link toPaddy Power's website

I don't know how up-to-date Paddy Power's website is and maybe the odds have shortened of late. Edited at 2008-09-17 14:46:36

Today I'm revealing a secret house price bet made at the start of this year within Motley Fool HQ. The participants are Dr David 'Podcast wizard' Kuo, David 'Dr Doom at MoneyWeek' Stevenson and me, Maynard 'Neither a David nor a doctor' Paton. I'm sure this public disclosure will add to the excitement and tension all three participants are feeling at the moment.

The bet relates to Kuoster's prediction of a 20% house price fall in 2008. I thought at the time it was a bit over the top and I distinctly remember sniggering behind his back at his secondary prediction of prices then rising steadily between 2009 and 2012 (http://www.fool.co.uk/big-ideas/your-finances-in-2012/index.aspx). Anyway, the regular banter followed and as usual it ended up as a token bet on what house prices would do in 2008.

I set the benchmark as the Nationwide Dec 07 house price of £182,080 (http://www.nationwide.co.uk/hpi/historical/Dec_2007.pdf). 'Status' quickly backed up his own publicity saying prices will fall 20% this year, suggesting a Nationwide Dec 08 house price of £145,664.

Growler Stevenson joined in and surprisingly was not so bearish and plumped for -10%. The former Fool arch-bear and now associate doomster at FunnyWeak therefore reckoned Nationwide's Dec 08 report would show a £163, 872 average price.

I spent nearly two seconds coming up with a carefully modelled projection and went straight down the middle with -15%. So I'm banking on Nationwide Dec 08 indicating £154,768.

Essentially the winner will be the Fool guru whose guess comes closest to the actual fall. The two losers will then take the winner out for lunch at Joy King Lau or some other cheap Chinese Soho restaurant known only to tightwad media tarts.

Anyway, eight months in and Nationwide's August figures revealed an average house price of £164,654 (http://www.nationwide.co.uk/hpi/historical/aug_2008.pdf). With prices falling about 1-2% a month, it looks like MerrynLeak's Dave S now needs an economic miracle -- or the Nationwide to go bust to claim an invalid bet -- to win this one. Good luck mate. And don't worry, I still have your new e-mail address to send you the final result.

Assuming the next four months lop a further 6% of prices, I reckon the Nationwide Dec 08 figure could be £154,775 -- just £7 above my guess. Get your wallets out boys -- I'm feeling hungry already!

I'll keep you posted on the details as we enter the final third of this gripping financial story.

My five-year-old son has just enjoyed his first brush with fame. On the front page of a local newspaper no less! Alongside such headlines as "helicopter hunt for naked man who jumped in river" and "a bit of a shock for woman who had big bingo win" is a good-sized picture of him holding his monster mask at a summer holiday activity event! We're well chuffed and thanks to Louise W for letting us know. A copy of said front page now adorns my desk at Fool HQ.

I suffered three incidents while driving on Sunday. The first involved me just spinning off the road, the second saw me thump another driver side on and the third had me being hit from behind and ending up backwards in a barrier. Thankfully the incidents all took place in karts within the confines of Buckmore Park, the best kart circuit in Britain, and the 6th round of the circuit's Iron Man 1-hour race series.

Despite the shunts, I was pleased with the race. My aims in kart racing are to finish ahead of my qualifying position, in the top half of the leaderboard, and to have a clean, smooth and mistake-free drive. On Sunday I qualified a scruffy 17th of 35, but by lap 3 had made it to 12th by keeping calm during the usual hectic opening laps. I'd never been higher in this sort of race! Annoyingly an unforced spin on lap 13 dropped me back to 16th, which then got me involved with a dice with three or four other drivers for the subsequent 56 laps. And it was one of those bar stewards that punted me off into the tyres on lap 46 at I guess was something around 50mph!

Aside from that incident, the racing was generally tough but fair, with the odd thump, and the results (http://www.buckmore.co.uk/content.php/23420?cha_ref=122&eve_ref=4685&s_ref=3642&sr_ref=52855) show how close the midfield battle was. After 1 hour and 66 laps, 11th place and 16th place were covered by less than ten seconds. I reckon 11th place would have been mine were it not for that frickin' first spin! But 13th is my best result in this series so far (I've done three previous races) and, when I reckon a third of drivers in this sort of race at Buckmore pretty much live in their karts, and the rest are generally occasional racers like me, I feel 13th was a very satisfactory result. I should say everyone this time was helped by a major shunt with five minutes to go that took out two of the front runners (one of whom my wife saw crawling on the tarmac trying to get back in his kart!).

This time I had better lines through some of the hairpins but I admit there is still plenty scope to improve my technique. A lot of laps were inconsistent. Indeed, my fastest lap on Sunday was 0.6s slower than my all-time record (set in my second race), which on reflection seemed a bit odd since I thought at times I was going reasonably quick. A lot can depend on the track, the weather and kart, though. A race in June was dogged by a bad motor that saw me finish a nightmare 28th :-(

At least the winner (http://www.buckmore.co.uk/content.php/23820?cha_ref=122&eve_ref=4685) this time was one of the older drivers, which gives me some hope for future races. And thankfully it stayed dry throughout.

I'm just back from a week-long visit to Motley Fool's US headquarters in Washington DC. Here are ten things you may or may not find interesting:

* Fly Virgin. I'm not a frequent flyer, so this may be old news to some, but Virgin's self-service check-in at Heathrow was a breeze. I also liked the flight's wide range of complementrary newspapers and magazines. Best of all was the unexpected upgrade to premium economy -- very nice with extra legroom, leather seat etc. More than made up for the 1hr delay at take-off and the usual cattle-like herding at US immigration -)
* Phew what a scorcher! Washington in the summer is baking. In the high 30s for most of the time I was there. Leaving the hotel in the early morning was like entering an oven. Too hot for a pasty northern boy like me.
* Shorts. Now, I'm no Gok and both him and our own Fool fashion fuhrer Laura Starkey may not approve of my chavvy Umbro three-quarters, but for most men, above-the-knee shorts are are definite sartorial faux pas material in my book. Sadly that involves most American males. Not a pretty sight, especially with anything but a pair of trainers on the feet.
* Big office. The Fool US office is huge. I'd guess the floor I was working on was 10-15 times the space of our London place. And there was an extra floor I think upstairs and another massive floor in another building around the corner.
* US office sandpit. Had a stressful day at Fool.com? Chill out with a rake and prepare a Japanese garden. Or just make a sandcastle.
* Food and drink. Not sure why Starbucks stock is down so much given the local branch is an extension of the US office. In fact, despite free fruit and snacks in the US office, most people appeared to eat out. I doubt anyone there brings in a packed lunch (like me back here).
* Ice cream. Now get this -- in honour of my visit, an ice cream stall was set up and for two hours staff could walk up and have a Ben& Jerry's ice cream served up with all the toppings. Woohoo!
* Chipotle, Amercian Express, Carmax and Markel. Four US stocks that cropped up more than one once after I asked various US writers what they'd buy now.
* Avoid United and Dulles. Unlike my previous exits from Washington, this time there was no swift check in for the flight home and this time there was extensive queuing through US security. At one point it was looking like I would miss my flight -- I was deemed a standby passenger and a sprint to the gate to join what essentially was a passenger lottery 5 minutes before take off is not something I want to experience in hurry again. Next time I'll arrive more than 90 minutes before take-off.
* Jetlag: Absolute nightmare at the moment which is why I'm here at 1:30am :-(

Hello and welcome to my blog.

To kick things off, I thought you might want to know about my 'scrapbook' pictures on my profile page

I like to drive around at high speed and I find my local kart track is a good alternative to penalty points. Depending on the results, I may keep you up to date with my occasional racing. I also like to hit people and so am working towards a martial arts black belt. This will be a long journey though. The mountain bike just helps me keep fit, but after years of never riding one it has become strangely addictive.

The charts at the back are supposed to represent share prices going up and house prices going down. Despite some dodgy market conditions at the moment, I firmly believe the FTSE is the best home for long-term money. I also think finding the next wondershare is the most likely way for me to enjoy an early retirement. As a renter, I am also pleased how house prices have turned downwards. About bloody time as well!

Edited at 2008-07-24 08:00:53 Edited at 2008-07-24 08:02:59