Drop in household net worth is scary.

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What if the property we are staying now dropped in value? For example, from the usually transacted RM500k, it is now usually transacted at just RM400k? We have lost RM100k on paper. If we sell, we have lost RM100k in cash. If we have holdings in the stock market and a bear market arrives, we have also lost a lot on paper and if we sold those stocks at lower prices than when we bought, then we have lost money on them too. It will be very scary if the paper loss did not recover and we eventually needed to sell and lose actual amount in cash. Well, according to the Federal Reserve, the U.S. households lost nearly US$4 trillion (RM16.35 trillion) in net worth in Q4 2018 because of a selloff in their stock market.

Article in fortune.com here. This US$4 trillion loss is the biggest one-quarter decline since the 2008 financial crisis (mortgage sub-prime crisis). Americans lost a collective US$4.6 trillion because the value of their stock holdings dropped during the quarter. Fortunately, this loss was partially offset by other appreciating assets such as real estate. The drop was mainly due to signs that Federal Reserve was going to continue raising rates and the tension from U.S. – China trade war. Both issues have since been alleviated. The report said that since Christmas Eve, the Dow has rebounded by 16.9 percent even if it’s below its peak level last October. Here’s that full article in fortune.com here for reference.

Please do read carefully yeah. The American households lost US$4 trillion BUT this the stock market has since rebounded. The peak was in October too. What we should be more worried would be if the stocks are all overvalued in terms of Price to Earnings (PER) because that would point to real future losses once the performance of some of these companies could not keep up with the valuations. Meanwhile, BURSA Malaysia is also down because it was tracking what’s happening overseas. (click here to read) Again, reminder to look at the actual company when we are buying. Understand the business and not whether the whole stock market is up or down. If we would not work in some problematic company, we should definitely not buy their stocks even if there are rumours… Happy investing based on value.

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written on 10 March 2019

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