Narach Investment


The stock market crash of 2008 and a retest of these low levels in 2009 took many investors completely by surprise. In 2013, it is now 4 years past the event, but the memory of that period of time September 2008 to March 2009 would be remembered by most investors for a long time yet.

By August 2008 most stocks were already at reasonable discounts to intrinsic value offering a fair margin of safety and stock positions in select investment grade stocks were being developed; and by September 2008 these stock positions had been fully developed and deployment completed. Most investors were now waiting for an expected reversal of the downtrend to be followed with a period of profit booking at higher levels. Of course, these stock positions as well as indexes were being monitored, and then came the slide; which took the index and all stocks to a further half of their value within days and weeks.

The crash occurred in the week ended 31 October 2008; that is, if this crash were to mean the lowest low in terms of value the stock market indexes and stocks achieved. Of course, the newspaper headlines were declaring blood on the street; and this street was Wall Street, Bond Street, Dalal Street and all the other similar streets around the world. Lehman Brothers has gone bankrupt, along with distress calls from a long list of financial giants of just a few days earlier.

Over the ensuing weeks news of the CDO and sub-prime as the reason for the then present condition of the global financial markets starting doing the rounds. No one seemed to know what to do and most investors were facing financial ruin staring them in the face. Leveraged positions and margin calls were being pulled of the table; and there was this domino effect resulting in ill-informed investors closing their stock positions even in the cash market at 80% drawdown levels. Regulators and rating agencies were providing a grim picture of the present and not so rosy a scenario for the future.

The fundamentals of the investment grade stocks were intact but were indeed deeply oversold technically. A decision was needed whether to hold all stock positions or book out at a substantial loss. Indeed, this was not the first time that such a crash had occurred but the reasons to leave were compelling and advice to this effect was also at hand. After a closer examination of the sequence of events and information and news flow, it was estimated that we would achieve breakeven by July of 2009. Thus, a decision was taken to stay deployed until July 2009 or breakeven whichever occurred earlier.

Much to the relief of most investors, the stock market started rising through November and December of 2008. However, then a second decline started probably to retested the earlier lows in January 2009 through March 2009. After which the stock markets and most investment grade stocks started their rise and continued to rise through July 2009 and beyond, and most investors were able to recall their stock positions at or about their breakeven points and some others at marginal profits. Of course, all this occurred as the discounted intrinsic value did not afford the margin of safety required and the technicals were apparently overbought.

Although, the stock market and all leading and investment grade stocks went on to make newer highs and continued their ascent till November 2010; most investors were not in step with the trend and probably missed most of this up move. There was pessimism in the stock market and fear at play and investment time horizons and holding periods had shrunk from months and years to days and weeks. Since, November 2010 upto the present the stock markets would appear to be distributing; but then again others would opine that it is consolidating. Indeed this would be more a matter of semantics of words and it would be for investors to decide for themselves which of the two it is.

With the passage of time investors saw the unfolding of quantitative easing, TARP and Twist and back to quantitative easing again; and more recently a question of its future sustainability. Alongside we heard of the Euro zone crisis and China under stress. While it appeared that, the BRIC and BASIC countries were muddling through at reduced and lower growth rates. Despite of all this the stock markets had moved up on a better than 30 degree trajectory.

As of 2013, it has been 4 years since the crash and some would opine that we might be approaching the edge of another cliff. Of course, there would be much debate and moderation on the fundamentals and the relevance of the technicals would be under scrutiny. The rating agencies would need to take note of these tectonic shifts occurring in the investment environment; and probably update their rules and measure including but not limited to statistical tools and algorithms. Indeed, updating to the present would probably afford a clearer view of the stock market condition now and reasonable earnings growth projections into the future.

There is a shift in the underlying economic thought in both the government and market spaces. Probably the present markets may need support for long enough to enable a new form of economics to unfold with its own set of rules with regard to market dynamic and government oversight and regulation. The responsibilities of the various market participants would become evident to enable the smooth transition and continued efficient functioning of the global financial markets in its new economic form. Observations make by Adam Smith and John Maynard Keynes amongst other leading economists may have provided foresight with regard to the present malady faced by the global financial markets (including the stock markets); and may have provided suitable resolutions in the fine print of their work.