Is a recession looming? The U.S. Federal Reserve certainly appeared to fear so when, in January, it chopped first a three-quarter point and then a half point off interest rates, spooked by a slumping housing market and a series of other poor economic indicators.
Going down: How can investors avoid a fall?
We might well avoid mass unemployment and soup kitchens on the streets, but it certainly seems that the recent good times of bull markets and ever-rising property values are over for a while, certainly in the United States and also, most likely, in many other countries.
So what is a company -- and still more pertinently, the humble individual investor -- supposed to do? Luckily, help is at hand from leading business schools, which, it could be argued, must earn their reputations all the more keenly in these leaner times.A collection of experts gathered together by the University of Pennsylvania's highly-rated Wharton school has one, overriding piece of advice for small investors in research just compiled: Don't panic.
Amid all the conflicting theories about selling equities to get into bonds, commodities or even cash, the assembled gurus urged the worried investor to hold tight and presume that their stocks will, over the longer term, continue to beat bonds, let alone inflation, in performance.
"I'm highly skeptical about the ability of most investors to predict turning points," he said.
"I think most people would be best served by staying with their strategic allocations and rebalancing if market moves have taken them too far from their targets. Sorry, but it's perfectly standard advice."Even if a U.S. recession is looming, noted Richard Marston, another finance professor at the school, it remains risky to try and avoid a downturn by exiting equities, cashing them in before returning when the market has bottomed out.
"In order to be successful in shifting towards cash and then back to stocks, we must first be able to determine whether we are indeed going into a recession," he said. "We won't know that until about 12 to 18 months after the recession begins."
FT MBA Rankings
1. Wharton, U.S.
2. London Business School, UK
3. Columbia, U.S.
4. Stanford GSB, U.S.
5. Harvard, U.S.
6. Insead, France/Singapore
7. MIT: Sloan, U.S.
8. IE Business School, Spain
9. University of Chicago GSB, U.S.
10. University of Cambridge: Judge, UK
Source: Financial Times 2008
Even assuming this, the investor "would need to know when to leave the market and when to enter it," he added. "Markets usually start falling prior to the start of the recession, but the lead time is variable over time. Over the last nine recessions, the lead time has varied from one to 13 months."
On the professional side, Jack Bogle, founder of mutual fund company the Vanguard Group, agrees that predicting market moves is a perilous business -- even though he puts the likelihood of a U.S. recession at 75%, mainly due to depressed housing prices hitting other spending.
"The consumer, of course, is king, creating about 70 percent of our GDP," he said. "I think we're in for one of the more significant economic storms of the last 30 years."
So, what to do? You guessed it, sit tight.
"First, understand that the stock market is a giant distraction to the business of investing," Bogle said."Don't do anything. That will probably be painful but it probably would be better than trying to guess when to get out."
Going down: How can investors avoid a fall?
We might well avoid mass unemployment and soup kitchens on the streets, but it certainly seems that the recent good times of bull markets and ever-rising property values are over for a while, certainly in the United States and also, most likely, in many other countries.
So what is a company -- and still more pertinently, the humble individual investor -- supposed to do? Luckily, help is at hand from leading business schools, which, it could be argued, must earn their reputations all the more keenly in these leaner times.A collection of experts gathered together by the University of Pennsylvania's highly-rated Wharton school has one, overriding piece of advice for small investors in research just compiled: Don't panic.
Amid all the conflicting theories about selling equities to get into bonds, commodities or even cash, the assembled gurus urged the worried investor to hold tight and presume that their stocks will, over the longer term, continue to beat bonds, let alone inflation, in performance.
"I'm highly skeptical about the ability of most investors to predict turning points," he said.
"I think most people would be best served by staying with their strategic allocations and rebalancing if market moves have taken them too far from their targets. Sorry, but it's perfectly standard advice."Even if a U.S. recession is looming, noted Richard Marston, another finance professor at the school, it remains risky to try and avoid a downturn by exiting equities, cashing them in before returning when the market has bottomed out.
"In order to be successful in shifting towards cash and then back to stocks, we must first be able to determine whether we are indeed going into a recession," he said. "We won't know that until about 12 to 18 months after the recession begins."
FT MBA Rankings
1. Wharton, U.S.
2. London Business School, UK
3. Columbia, U.S.
4. Stanford GSB, U.S.
5. Harvard, U.S.
6. Insead, France/Singapore
7. MIT: Sloan, U.S.
8. IE Business School, Spain
9. University of Chicago GSB, U.S.
10. University of Cambridge: Judge, UK
Source: Financial Times 2008
Even assuming this, the investor "would need to know when to leave the market and when to enter it," he added. "Markets usually start falling prior to the start of the recession, but the lead time is variable over time. Over the last nine recessions, the lead time has varied from one to 13 months."
On the professional side, Jack Bogle, founder of mutual fund company the Vanguard Group, agrees that predicting market moves is a perilous business -- even though he puts the likelihood of a U.S. recession at 75%, mainly due to depressed housing prices hitting other spending.
"The consumer, of course, is king, creating about 70 percent of our GDP," he said. "I think we're in for one of the more significant economic storms of the last 30 years."
So, what to do? You guessed it, sit tight.
"First, understand that the stock market is a giant distraction to the business of investing," Bogle said."Don't do anything. That will probably be painful but it probably would be better than trying to guess when to get out."
Info taken from: Peter walker(CNN)
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