Thursday, November 20, 2008

Ouch! Jakarta Index falls some more

Here we go again. Another day, another 2% drop for the Jakarta Index. Indonesian stocks are caught in the downdraft of the American market (magnified by the fall of the rupiah), where the Dow is now below 8,000 and basically where it was five years ago. What was that about 10% annual returns, that our financial advisors kept telling us about?

You're probably wondering about where to invest your money, when nowhere is safe. Good thing I just wrote an article for Canada's Globe Investor magazine, on what Ben Graham (the king of value investing) would do right now. The answer is he'd probably be buying.

In a nutshell, Graham looked to buy companies with low price/earnings ratios and low debt, that are selling at a discount to their book value. With the carnage going on right now, it's the first time in a long while that a lot of companies fit that description. Sure, things could go even lower, thanks to investor panic. But it's impossible to predict an absolute bottom, and according to the numbers, plenty of stocks already look pretty darn cheap.

Value investing is a long-term strategy, though, so don't expect to make big money in the next days or months. But if you're holding for many years, those who buy now, when things are at their bleakest, will be nicely rewarded. Consider Ben Graham himself: He almost went bankrupt in the Great Depression when the market lost 90% of its value, but by sticking to his principles, ended up a millionaire who retired in the south of France.

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