$4 Gas - Will Life Change Forever?

How it used to be ...

In 2000 the technology bubble burst and my portfolio suddenly shrank in size by 50-75%. But I was in denial or more aptly was just ignorant. I held on to my technology mutual funds and stocks … expecting these companies to rebound. As months turned into years – reality started to sink in. We had turned a critical corner in the technology revolution and the players had changed for good. I had learned my lesson and sold off my beaten down technology stocks and moved on.

A similar cataclysmic change seems to be happening in the energy space. Oil prices may retreat eventually but will life go back to how it used to be? The more time we spend with $4-5 gas – the more pervasive the changes.

What was taken for granted till recently is being re-evaluated. Gas or energy inflation is driving long-term behavioral changes. The winners of tomorrow may not be the oil companies and refiners – that is old school. The new players will be alternative fuels companies, energy innovators, conservation specialist and efficiency gurus. A corollary of this impact will also be the evolution of green. Green as a way of life, as a way of conducting business, as a necessity and not a fad.

Will the gasoline engine survive (and the Detroit auto industry)? Will Mc Mansions still be in vogue five years from now? Will commute times and telecommunications change the way we work? Will renewals become routine energy sources? Will America reduce its consumption? How will global energy demand be met? What will be the impact of increased fossil fuel usage on the climate? What innovations in travel, building construction and technology be unveiled that will change the way we live?

We live at the cusp of revolutionary change. Betting on Google, Amazon and Apple after the technology bust would have paid off handsomely. Question is what should one bet on next?

(Photo courtesy Flickr/The Visions of Kai)

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Tug-O-War

Pick a side

The battle between fear and greed rages on. Turn on CNBC and you only hear about these two emotions. Rational thinking and market analysis is taking a backseat to pure speculation and conjecture.

There is rampant fear about how bad it is going to get. This emotion drives selling, panic and despair. And this emotion is not limited to the retail investor like you and me, it is pervasive as evidenced by the daily market sell offs.

The other camp touts greed - time to bottom pick. This emotion drives the exhilaration of getting a bargain, the need to buy and accumulate what is deemed cheap. Multiples are ridiculously low, we are still not in a recession, global demand is high and as usual the market is over-reacting.

Time will tell if this was a good time to be fearful, greedy or just a spectator.

(Photo courtesy - Flick)

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OK - It's Officially A Bear Market!

20% Down

"With the Dow sliding into a bear market on Wednesday, the dark days on Wall Street are far from over, amid record oil prices, struggling consumers and the never-ending credit crisis."
Yahoo Finance

I guess reality is slowly sinking into the market. All is not well and the malaise will probably stick around for a while. At some level we all knew that things will get ugly but thinking is different from experiencing. Now with the market dropping like a rock – the pain is real. Your portfolio is decimated, annualized returns are receding and you start to wonder – what am I doing in the market?

The desire to cut & run is strong. You wince each time the market drops another 100 points. The parade of red down arrows at the end of a trading day is always unpleasant. And the doom & gloom prophecies are gaining momentum. What was hot and prudent yesterday is suddenly iffy and speculative today. Such are the convictions of the market gurus & pundits.

I am staying. Staying because I believe in the robustness of the global business environment. People are getting richer, opportunities for growth are tangible, technology is enabling globalization and yes – long-term equity appreciation is probable. Agreed that there are real issues facing the global economy today but strong demand will lead to strong growth which will lead to strong profits and strong markets.

I am buying what is on sale. Real estate is on sale. Equities are fine but diversification means getting beyond one asset class. With bargains aplenty – why not acquire some real estate. Be a landlord, build some equity, run a business and invest in another asset class.

I am learning. Stick with your gut. The market behaves in irrational ways but it cannot ignore large macro trends. Sooner or later the market will reflect reality. It was obvious early this year that we are headed for trouble but convinced ourselves otherwise. Ignore the noise, do your research and stick with what works for you.

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