Bye bye 2008!

I never thought that world would see a 1929 again, however, I should have remembered that history always repeats itself. 2008 was a mixed year; while the first half began with a huge promise of making this world a happy place despite what had happened in August of 2007, the second half saw a free fall in the world markets. Situation went just worse from bad leaving thousands jobless and probably many more to go. The equity markets, commodities markets, currencies and fixed income markets have witnessed a once in a century event. Financial history text books in future would refer to 2008 as a year of error(s) ... "an error of optimism"

The world paradigm has shifted and to what extent - gone are the days of easy personal loans, gone are the days of making quick bucks in the stock / property markets and with that has gone down the legacy of many institutions around the world which were considered to be the best in their business. I don't have much experience of down falls. The first even correction known to me was the Indian market correction post the HM era. Second known was the dot-com bubble. However, this is my first ever live correction. I was one of the fotunates to have joined the market when the trend was always on the upside; only to see the fall now.

A lot of people ask me where has the money disappeared from the market? Who gained out from this kind of selling in the market? .. My answer to this question is 'No One'. Hard to believe isn't it. No one gain's..how's it possible? Like I mentioned previously, we all have been caught in an error of optimism at the same time. Bad luck! may be. Some of the common features of this error of optimism are as follows:
1. Banks start to lend money freely - they want to earn more and thereby risk more capital
2. Suddenly every one in the markets tries and discounts cash flows which are gonna occur in 3 years from now and sells you a forward 3 year P/E
3. Even a hawker on the street talks about investing long term
4. Growth becomes the ultimate goal of every soveriegn in the world, be it with inflation - doesnt matter
5. A lot of new players enter into the Asset Management, Private Equity and Real Estate business
6. The term 'Value' takes an entirely different meaning...

An error of optimism is nothing but the fact that every one around you is overly optimistic about the state of the world. Unfortunately, we all get stuck into the markets when things look bright and are caught for not exiting because we are too optimistic. Happens to everyone! ... even the writer of this blog ;-)

The good news is that 2008 is coming to an end and 2009 makes new promises about the happy state of markets. May be this correction will soon see its bottom and there will be some massive consolidation in 2009. I just hope 2009 doesn't turn out to be as bad as 2008 was. (I am still optimistic :-) ...hopefully I am not making that error again). Bigger, better, joyous and fruitful 2009 is all I want!