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.

This week, as well as writing, I was off making an On The Money video podcast, with our producer Andy Paul and the assistance of my fellow Fool Szu Ping Chan.

It was lots of fun. We headed off to Paternoster Square by St Paul’s to conduct the vox pops. This basically consisted of me approaching lots of suited City workers with a microphone and asking: Who’s To Blame For The Credit Crunch?

If you want to hear what they said, you can watch the video here.

The sad thing is, only one woman felt confident enough to give her views on camera. And some of the men were really quite sleazy and patronising - so all in all, living up to the City worker stereotype.

For example, in response to my question “have you got a couple of minutes to talk to me?” one guy replied: “No, but you’re very sweet.” Another said: "For you, I could spare many, many minutes... but unfortunately I'm too busy right now."

I'm sure they thought they were being charming but I would just like to take this moment to say: Yuck.

Then it started raining so we got out the trusty Motley Fool umbrella. Only problem is, I’m quite small and the umbrella’s quite big. At one point, it got so windy I almost threw the umbrella (by accident) at someone’s face while I was interviewing him! Needless to say, that clip didn’t make the final cut…

Episode published: 10/10/08 | Listen To This Episode

In This Episode
Some 300,000 of us have already invested in one, but what exactly is a SIPP? How does it work, how risky is it - and given the current financial turmoil, is now really a good time to be investing in a pension?

And, if you are investing, what should you be investing in - managed funds, high yielding shares or trackers, bonds, gilts or cash?

David’s on the case and is joined in the studio this week by Tom McPhail and Richard Hunter – pension investment experts from Hargreaves Lansdown.



Richard Hunter (Left) with Tom McPhail (Centre) and David Kuo

We also take a look at the new rules that came into effect on 1st October which mean you can now finally transfer pension money with protected rights status into your SIPP. If you’ve contracted out of your pension in the past, and already have a SIPP – this is a worth a listen.

Plus, what level of protection does the FSCS provide for pension schemes? At what point should you get out of equities as you head towards retirement age, and why is buying an annuity something of a postcode lottery in the UK?

For more on starting a pension, check out this article: Pensions For Beginners:


Edited at 2008-10-10 14:30:18 Edited at 2008-10-10 14:30:36

There’s a war going on in our office.

As the financial meltdown continues around us, we at The Fool have been getting our priorities straight.

So, this morning as I sat down at my desk, I opened an email sent to the whole office.

The subject?

The state of our kitchen.

You see, our resident kitchen goddess has gone on holiday for a couple of weeks, leaving the rest of us to fill her shoes while she's away. Now, you’d have thought it would be a relatively simple task. But there's a bit of history to this debate.

Over the past year that I’ve worked here, I’ve seen emails cursing the person who left their unfinished meal in the sink, damning those who left their mugs laden around the dishwasher and condemning those who dare to leave wet rings on the table where their mugs have sat.

There’s also one particular crockery vigilante that sits in our office. I’m not going to name any names, but this morning he threatened to, and I quote, ‘curse you [sic] PC’ if you didn’t leave the kitchen spick and span on his 'day' of kitchen duties.

To be fair, he has a point. There are some serial offenders here. Take, for example the person who leaves a spoon on the water dispenser every, single, morning.

Or the person who continually throws their spoon into the sink. I’ve been reliably been informed who you are. Then again, it must be due to the early onset of arthritis preventing them from bending down to the dishwasher.

Vigilante, have a heart.

Kinda reminds me of when I was at uni and the word ‘hygiene’ didn’t exist. I didn’t dare use anything in my kitchen halls. The kettle alone had things growing inside it that scientists would only find on Mars.

At least here it's clean. And as much as I may jest about the email, the injection of fear has meant I could almost see my refection in the tabletop today.

Who says threats don’t work eh?

As regular readers of my blog might have guessed, I was away from work last week.

Although the bf and I didn't go away, we spent a lovely relaxing week here in London -- which culminated in an all-day cinema trip last Friday, during which I picked a film (Mammia Mia - brilliant) and he picked a film (Tropic Thunder - gross, silly, violent, and some more gross).

Anyway, during Mamma Mia -- before I could be distracted by Pierce Brosnan's rousing version of 'S.O.S' -- I concentrated enough on the plot to feel a real affinity with Meryl Streep's character, Donna. It isn't just that she jumps about in dungarees for most of the film and generally seems a bit stroppy. No: the bit where she sings 'Money, Money, Money' was the part that really got me.

It must be funny in a rich man's world, she sings. Yes, I thought as I munched on my popcorn, it must. Whereas I have to work all night and work all day to pay the bills I have to pay. Ain't it sad?

That said, the super-rich folk who've masterminded and invested in London's Westfield shopping centre development might well be quaking in their designer boots right now.

The super mall, set to be the largest inner city retail centre in Europe, will open at the end of this month -- and no doubt the launch will be accompanied by much ceremony, many celebs and lots of London style. But with the British economy sliding towards an almost inevitable recession, is this really the time to be opening a colossal cathedral of consumerism?

I suppose they don't have a great deal of choice now but to throw the doors wide open, promote the place as though all our lives depend upon it and hope for the best. Still -- I wonder if the centre would have been designed on such a massively ambitious scale had its backers been able to forsee the credit crunch and all its foul fallout.

The thing that I think might save Westfield is its focus on an upmarket, high fashion offering. Prada, Tiffany and Louis Vuitton have all signed up for stores in the centre -- and while the likes of me try to break our Topshop habits this winter, I imagine the kind of person who regularly shops in boutiques is probably not feeling the pinch in quite the same way as me. Or Meryl/Donna.

Nevertheless, I'll be interested to see how the mega mall fares over the next six months -- and which of its shops are the most (and least) packed on a typical Saturday afternoon.

And while I'm watching out for news of other people's shopping habits, I suppose I -- and many of the nation's other credit-crunched consumers -- will continue trying to reign in spending, pay down debts and keep costs under control.

But hey. I'm going to carry on singing while I do it. After all, it was ever a rich man's world -- as Abba so jauntily remind us.

Episode published: 06/10/08 | Listen To This Episode

In This Week's Episode
Are the Americans wholly to blame for the credit crunch? Should there even be a bail-out by the US government and what happens to the global economy if it doesn’t work?

David’s joined in the studio this week by Fool.co.uk’s editor, Ed Bowsher and Fool.com’s Analyst Todd Wenning who’s on the line from Motley Fool HQ in Washington DC.


David Kuo and Ed Bowsher in the studio, talking to Motley Fool Analyst Todd Wenning in Washington DC.

So will things ever be the same again on Wall Street, and when it comes to investing during these troubled times, does it truly pay to be greedy when others are fearful?

Also, check out Bill Mann’s article from the Fool.com website, Dear Wall Street, We’re Watching You, as mentioned by Todd in this podcast. Edited at 2008-10-06 18:07:38

I’ve been writing about the ramifications of the credit crunch ever since it began 14 months ago.

But this month, it really hit home.

First, two good friends of mine made headlines. Or rather, their employers did. He was at Lehman Brothers while she was at Bradford & Bingley. And no, neither of them were traders, making millions. They’re both just ordinary people, doing pretty ordinary jobs. Or they were….

Then my father, who’s in his early 70s, discovered his pension fund was haemorrhaging hundreds of pounds a week. He’d invested a lump sum six years ago into a complex financial product he didn’t understand but had read was safe. Needless to say, not on The Fool.

I felt terrible. At his age, he shouldn’t have any exposure to the stock market whatsoever. I knew this, being Foolish, but I’d never interrogated him about his finances – I’d never wanted to pry and I didn't feel I had the right. Stupid, stupid, stupid.

But at least I could help him now.

His top priority was to put the money somewhere safe, where its value would not be eroded. I cautiously recommended NS&I savings certificates, because they’re tax-free and guaranteed to beat the Retail Prices Index by at least 0.85%, so his investment would always stay ahead of inflation. And, of course, NS&I is backed by the Government, so its certificates are 100% safe.

He was really happy with this, and invested in a three-year certificate last week. Apparently, when the woman at the counter asked him why he had chosen that account, he replied proudly: “Because my daughter’s the deputy editor of The Motley Fool!”

I just hope his faith is not misplaced. And that I’m not cursed. I do have a couple of friends who work for Deutsche Bank. Maybe I better warn them…?



Edited at 2008-10-06 16:19:36

I watched a recording of the Palin/Biden TV debate on Saturday afternoon, and then today I watched the 'Saturday Night Live' spoof of that debate.

It's brilliant. I don't think I've ever seen better political satire on the TV. It beats 'Yes Minister', 'Spitting Image', 'The Thick of It', Rory Bremner and anything else I can think of.

Watch it!

Edited at 2008-10-06 11:32:04

Episode published: 02/10/08 | Listen To This Episode

In this week’s episode:

When British Gas announced it was increasing its gas prices by 35% at the end of July the other providers quickly followed suit. So where next for oil and gas prices? And should you still consider switching to a fixed energy tariff after the latest round of price hikes?

Joining David in the studio this week to ‘talk tariffs’ are Florian Ritzmann from energy provider comparison service Xelector and Bill Bullen from energy provider Utilita. Neil Faulkner, our man in Germany, is also on the line.

We discuss the pitfalls of pre-pay metering, and take a look at meter fraud - Bill explains some of the ingenious (and highly illegal) ways people have defrauded energy meters over the years.

Plus, there's also practical advice from Neil on what should you do if you think you’ll struggle to make your energy payments over the next few months.

Florian previously appeared on Money Talk in April 2008 - Listen to: Fight Back Against Energy Price Hikes Edited at 2008-10-02 16:50:37

Here at Fool HQ we do our best to practise what we preach. But I won’t lie to you being a Fool it isn’t always easy. I’m the first to admit personal finance can be a minefield and the industry often just makes it all the more difficult to get your head around.

I’m sure we all have plenty of criticism on that so please feel free to share, but here are just five of my ultimate financial pet hates:

1. Exclusions, exclusions, exclusions – oh how I hate insurance policies that have so many of the little blighters for wriggling out of claims that the cover is hardly worth the paper it’s written on. (I have a particular bone to pick with this one, but I’ll write about that another day.)

2. Loss leaders – these are products which are pretty fantastic and draw in the crowds but they aren’t very profitable for whoever is selling them. They do, however, serve a very important purpose for the industry (and not for us, the customers). They give companies the perfect opportunity to dig their evil cross-selling claws so deeply into you until you give in and buy a pile of rubbish products just to stop them hounding you.

3. Infinitely detailed terms & conditions and the small print – they don’t exactly make for good bedtime reading. Is plain English really too much to ask for? Even when you read “Here’s our T&Cs in plain English” what you’re often faced with is reams and reams of incomprehensible babble.

4. Form filling – it should be so easy but even correctly completing the application form for the simplest of accounts can sometimes be a challenge worthy of The Krypton Factor.

5. Hidden catches – they’re all over the place just waiting to trip you up. Here are a few of my most despised:

• The savings account where you can make penalty-free withdrawals as often as you like as long as it’s in July! Such flexibility truly knows no bounds. Can this really be sold as an instant access account?
• Balance transfer credit cards which take away your 0% deal if you accidentally make one late payment. No second chances then?
• Higher lending fees on mortgages. The more you need to borrow of the house value, the higher the interest rate you’ll pay anyway, so why do you need to be penalised twice with this ridiculously unfair charge?

And so I could go on and on and on but luckily, for you, I won’t! Edited at 2008-09-29 10:02:50