Mistakes from 2008, not to be repeated in the New Year!

What a year 2008 has been, plenty of negative events worldwide to remember it by, quite like a chain of dominoes falling down one after another! Are these events such as the bankruptcy of Lehman Brothers, the collapse of Iceland, the giant ponzi scheme of Madoff, global recession etc just unfortunate anomalies? Or have all of us just been living in blissful unawareness all this while? I think that we've just been very foolish to believe that uncontrolled gambling of the financial markets can ever be sustained indefinately. The current crisis is teaching us two very important lessons, that our greatest enemies are ignorance and greed.

Ignorance is bliss?

Given a choice, people generally prefers to choose the easiest option when making investment decisions. This means relying on dubious advice from so called financial "professionals" instead of doing their own work of proper analysis before putting down any money. Yes, if you are lucky and the timing happen to be good, every one makes money and is happy. However, when the tables start turning against you and you start losing your profits and investments, ignorance is no excuse and there is no one to blame but yourself. I'm very surprised that even the very rich can fall into this laziness trap ie. Madoff ponzi scheme. Ignorance is not bliss when you find your pockets emptied!

Greed makes the world go round

The root of the financial crisis would be the bursting of the housing bubble in the US which caused the value of complex derivatives securities based on subprime mortgages to plunge dramatically. Many major banks and financial institutions, which were heavily invested in these risky products due to its high yields, suddenly found these heavily leveraged "assets" shrinking in value dramatically and became desperately in need of fresh injection of capital to continue their operations. Why were the balance sheet of so many financial institutions loaded with these highly risky products? Greed is the reason. High yields are there to account for the much higher risk of default, but proper due diligence is ignored to chase after greater monetary returns. One should always keep greed in check and never overextend beyond their financial means to chase after unsustainable high returns.

Knowledge is Power

With the current economic circumstances, should we just stay still and hoard cash under our pillows? I think not. I believe that the current crisis is a major wake up call to everyone who has lost money through ignorance or blind greed. For people seeking superior returns than the meagre interest rates that the banks gives, the best investment now would be to read up books or attend courses to build up financial IQ. For 2009, make a resolution to to learn to manage your own finances and make good informed investment decisions instead of solely relying on other people's advise or chasing after the hottest financial product.

"People who look for easy money invariable

pay for the privilege of proving conclusively

that it cannot be found on this earth." - Jesse Livermore

With the proper knowledge skills and psychology, it is definately possible to be earning good returns whatever situation the markets are in: up, down or even sideways. You've got to put in some effort to get better yields on your money!

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