Heard about the stock market crash and panicking? Don’t. Here’s what you need to do.
22 January 2008: As Australian shares hit freefall in a crazed afternoon of trading investors are sweating and looking for answers. With the All Ordinaries Index taking a beating, dropping 294.4 points, or 5.23 per cent, to 5336.5 before noon, it’s not a ride most people are comfortable about sitting tight on.
Making smart decisions in the middle of chaos, however, is not an easy thing to do. First, take a few moments to clear your head. Step back a bit and assess the situation. The following suggestions should help:
Shares losing value: what to do?
- Check in with your broker; get an honest appraisal of the damage to your share portfolio. Is it as bad as you feared?
- Consider holding onto those falling stocks – there may be a bounce back where they regain some value in the short term. Insiders say the market is now pretty close to the bottom. If your nerves can handle it, the advisors are telling clients who have not had a margin call to sit tight…
- Assess your hedging options – your broker can advise you on various derivatives and financial instruments that you may be able to employ to soften your losses
- Consider buying “good” stocks that are now much cheaper (!) and perhaps you couldn’t afford – this will help to balance your own losses
- In the next few days review your longer term strategy – if you are nervous about the much-touted US recession and the impact it could have on Australia it might be time to look at Asian and other emerging markets such as carbon trading and eco options
- Tomorrow, get professional advice from your financial planner, tax adviser and stock broker
- Breathe. It’s going to be a tough few days but don’t lose it just yet. The longer term prospects for Australia are great. Stay committed to surviving this correction and finding a way to get back up on top.
- When the markets close for the day and you have done all you can do go for a run, swim, walk or get some kind of exercise to help you calm down.
Margin calls forcing you to sell?
If you have had a margin call then clearly you are one of the hardest hit. These are your options:
- The obvious one is to find additional funds to cover your loan. This may be from additional savings, your mortgage redraw facility etc (but if you are considering redrawing think this through very carefully and get professional advice before you put more assets at risk!)
- Look at the stable stocks in your portfolio and see if your lender will take them as security against your loan to prevent you from having to sell
- Hock some jewellery, household items or car – go to a money lender this afternoon or overnight and ask for finance in exchange for the goods. Make an agreement with the lender to reclaim your goods within a set timeframe so that if the share prices bounce back in the next few days you can recover your personal items
- If you are forced to sell down start working now to recover the funds by researching shares to buy that have now dropped in value but are expected to recover.
Peace of mind
Always seek the assistance of professional advisors before making significant decisions about your finances, especially when you have had a margin call. Also seek the advice of more experienced investors who have survived a correction previously. If you don’t know any ask your broker or financial planner to put you into contact with someone they may know. This should help you regain your peace of mind in the short term.
