If the stock market continues trading sideways during the rest of February, this month might see a slight improvement in net worth due to a small rebound in house price sales data for our suburb, and the payment of three months (Oct-Dec '08) worth of 'salary sacrifice' and SGL superannuation payments by our employer last week. It would be nice to finally see a month with a positive change in my net worth - so far there have only been two positive months (Apr and Aug) since the GFC took hold in Nov 2007. During this period my net worth has declined by a massive -$557,862 or -47.58%!
Things would have been a lot different if I'd reduced my level of margin loan gearing during 2007 (Plan B, with capital gains draw-implications), or actually followed through with keeping enough Index Put options in place to "insure" against a sever bear market (Plan A). Looking back it's hard to believe that I didn't make enough effort to buy new Put options in Dec '08 when my previous ones (bought around Mar '07) expired (a quick online search didn't find a suitable option on offer at the Index level I wanted for Sep 08 - I should have called my Comsec options broker to get some help). At the time it didn't seem urgent as the market was still testing new highs, and the sub-prime crisis in the US in June didn't seem to have had any impact on the "real economy", especially globally. I let the fact that the expired options had cost me around $8,000 and that most market pundits were predicting a flat market in 2008 (or single digit returns) after three years of 20%+ gains, lull my into a false sense of security. The slight dip in the second half of 2007 appeared to have been the limit of the impact of the US sub-prime fiasco, whereas in reality it was just the first ripple warning of the coming financial Tsunami.
Lesson from all this: if you make a financial plan (I my case to sell Index put options rather than sell physical stocks to reduce my gearing) you have to FOLLOW THROUGH with it!
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