September 12, 2008

The Financial Markets' Downturn Hitting Home

When the raging bull markets of the late 90s and early part of this decade ended, they fell with a tremendous thud. With the Web 1.0 boom turning to bust, combined with heightened fears over terrorism and world instability, the idea that one's investments would forever increase was dashed almost overnight. In 2008, we have a situation that's arguably even worse. Housing prices and demand for homes has plummeted. Energy prices are sky high. Financial institutions, having made many bad bets, are declaring bankruptcy and getting government bailouts. And unfortunately, the only near-guaranteed part of trickle-down economics is that the individuals at the bottom always feel the pain - and few are immune, myself included.

I've been lucky enough to hold down the same job from before the first recession through today. I saw Silicon Valley freeways go from being a gridlocked mess to easy driving, and back to a mess again. I saw billboards go from being plastered with dotcom ads to being "Available", only to return with a wider variety of advertising. And I've seen personal investments go from guaranteed profits to nearly pulling it all into cash, and later, getting back in, but trying not to be too exposed.

This ebb and flow is reaching a low point again. The entrance into our complex of condos is littered with "For Sale" signs, and more than one has a note of "Reduced Price", signaling the owner's desperation to move out and move on. Popular area lunchtime restaurants that used to have long lines out the door can now be visited without too much concern for parking. And, yes, my stock portfolios are bleeding out, seemingly getting worse by the day.

I thought I learned from some big losses the last time around, to not be invested in companies I didn't feel I knew very well, and not to hold stocks for a long time. I've become much more of a "flipper" who holds stocks for days or weeks, looking for what could be momentum. And at times, this has worked great. I recently played TiVo stock for a few days, and made enough profit to buy a new fridge we needed. At times, I've played Apple stock around earnings, essentially keeping me in Cupertino gadgets for free. And earlier this year, I even invested in some of the energy stocks, making money on them as the price of gas continued to climb.

eTrade Shows the Q1 Losses Are Keeping Me in the Red

But, despite these wins, right now both my personal portfolio on eTrade and my 401k are pretty hosed. On my 401k, I've lost more than half the money I've added through donations this year. And on eTrade, I've accumulated enough losses in the stocks I'm holding now that the total deficit would essentially represent lost months of work.

The 401k Says My Rate of Return is In the Cellar

Now, we're not bankrupt. And we haven't made any big purchases of late (aside from that fridge). We don't have credit card debt, and we're paying our mortgage. So we're doing quite well, compared to others who have much greater problems.

But there seems to be an air of uncertainty and discontent that comes with having less money than you had just a few months ago, and knowing what you do have isn't going quite as far. It feels like people's fuses are shorter and they're more stressed. And at times like these, it's hard to think what's going to change things. Alternative fuels? A massive change of heart in the stock markets? Probably not. This just could mean we're in the beginning of needing to buckle down, hang on and be even more judicious about what we do with our money, before things get worse.