Lessons learned in 2008 – Extreme fear after Lehman Brothers gone into bankruptcy

I went back to read my blog postings in the year 2008. There was extreme fear in the global financial markets brought on by the sudden bankruptcy of Lehman Brothers in September 2008. We read in the papers how investors lost millions. (see blog post dated 26 November 2008)

Like most investors with investments in financial products, I was not spared. I was invested in currency-linked fixed deposit, DBS Credit-linked Notes, DBS High Notes, some unit trusts and Singapore equities.

I remember fearing the worst for DBS Credit-linked Notes and DBS High Notes. Would I get back the full amount invested on maturity? Most of my unit trusts were down more than 20%. These unit trusts were narrowly-focused such as Commodity Fund, Middle East, China. Singapore equities were down 18%. The currency-linked fixed deposits were down 13%.

Such was the state of affairs back in 2008. I was lucky that I held on and did not panic into selling my investments. I recovered the full amount with interests of DBS Credit-linked Notes and DBS High Notes in 2011.

What lessons have I learnt from 2008?

  1. I reduce my exposure to higher risk products. The quantum of investment in each financial instrument is now lower.
  2. I decided that currency-linked investment is too risky. I sold off my currency-linked fixed deposit. I now sleep easy without worrying about currency pair exchange rates on a daily basis.
  3. I sold off narrowly-focused unit trusts such as the Commodity Fund and the Middle East Fund.
  4. I do not go into structured notes without fully understanding them. I prefer plain vanilla corporate fixed income instrument of established corporation. I have to make sure that the corporation is one that can pay the debt on maturity.

Is 2016 the same as 2008?

For one, the US presidential election happened in 2008 when Barack Obama was elected and now the presidential election is happening again. That is where similarity ends. 2008 was a turbulent year when the US sub-prime mortgage crisis erupted. Now United States is the only developed country with the best showing in economic growth. The fear was not the same in 2008 and now. 2008 was unprecedented when come to fear factor. I know.

Copyright © 2016, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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