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Wow - it hurts!

What a week - as soon as I wrote my last blog to take up some positions for 2008, market tanked by 4% and it's on way to crash another 4-5% when it opens up tomorrow. All world stock markets are down from 4 to 10% on Monday and Asian markets are again down on Tuesday.

Is it start of bear market (some indexes are already down by 20% - classical definition of start of bear market) or is it another buying opportunity similar to Feb 2007.

Stock markets have wiped out all the gains (and some more) of 2007 and trading like end is near. Here are my predictions (I am sure many of them would be wrong in few days:-)

  • Markets will be very volatile for whole of week with triple digit moves on Dow (and possibly Nasdaq)
  • Fed will reduce rates by 50 basis points definately by Jan 30. I won't be surprised if they lower the rates before market opens on Tuesday 1/22
  • Stock indexes will go down in early week and then recover ground later this week to break even for the week. Dow will test 11800 this week
So what do we as investors do ? My recommendation is to selectively invest in indexes like MSCI emerging markets and little bit in mutual funds focussed on financial services.

VANGUARD TOTAL INTERNATIONAL ST (VGTSX) is excellent way to get exposure to developed as well as emerging markets and capture excellent gains provided due to volatility across the world stock indexes. Invest little bit of money every week in this for cost averaging

While it hurts to see portfolios down by 10-20% within first 3 weeks of new year, if you are long-term investor, this is an excellent opportunity to put more money to work.

Good luck and good night !

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