General Motors & Bankruptcy...Maybe??
These are the times that try men's souls. any down market period brings surprises and challenges to the resolve of advisors and investors and this market cycle is no exception. When a Merrill Lynch analyst recently included the "possibility" that General Motors could declare bankruptcy in his report in early July, news services all over the world carried the message in many disjointed and inaccurate ways. But the very fact that these words would be connected in the same sentence is what brings fright to people.
Reports like this one bring to mind the constant rub between fear and greed that always has characterized Wall Street and the fear that this analyst sensed when the stock had already fallen from $39 per share in October 2007, to just above $11 when the report was released. Do we really need to be warned that something terrible might happen when shareholders have already lost $28 per share or more than 70% of its market value in such a short time period? How many times did this same analyst recommend investors to buy the stock when it was 35 or 40? Now, when a financial advisor might want to suggest a client speculate on GM by buying it at 10, they have no backup from their firm if there is a negative rating on the stock such as advisors at Merrill Lynch now find themselves. If the past is prologue, when the stock turns around and goes back to 25 or 30, then the analyst will put a buy back on the stock.
This is not to say that I am recommending GM stock to you since I am not licensed to do that anyway. But what I am saying is that fear strikes professionals just like it does the average advisor, analyst, and investor. Suggesting that GM could drop another 3 pts after it has dropped 70% in less than a year doesn't seem like much of a help. Staying alert to the fact that fallen angels in a bear market will someday be growth stocks in a few years is historically hard to keep in perspective when your portfolio is in a decline. That is what bear markets are all about. Finding out who will survive and who will bail out during fearful times. It is also the period of greatest opportunity since patient investors can find incredible values and then exercise patience in buying and waiting out the economic downturn.
Even more important than resolving fear, bear markets are great times to renew our calling. God brings us thru periods like this to teach us that He is in charge of both the universe and even Wall Street. Acknowledging His presence in our work and in our finances may require us to re-examine our priorities, our schedules, and even our vocation. What is God calling you to do during this trying time?
Matthew 6:33 "Seek ye first the Kingdom of God and His priorities, and all these things shall be added unto you."
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