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Financial Crisis Not So Bad3 min read

It doesn’t take a genius to realise that our markets are in a slump. It’s only natural to believe that the big fund companies are suppose to rescue your 401 (k) from the market turmoil. They are, after all, the ones that have all the analysts and resources at their disposal. But when you look at the numbers, their performance has been worse than the rest of the market so far this year.

Fidelity, Hartford, and Oppenhemier all have over 30% of their funds in the bottom quartile. But they all believe that their funds will benefit in the long-term and their performance will improve. Do you?

Despite the onslaught of bad news, the financial sector will bottom eventually and our markets will slowly correct itself – it has to. This is a time where you can pick up some really cheap stock – especially in the financial sector. The government is, why shouldn’t you?

No matter how bad the headlines have been, not every bank, automaker or retailer is on the brink of collapse. For example, while GM and Ford posted insanely large losses, Honda Motor reported a record $1.7 billion profit for its first quarter ending in June.

I am sure everyone remembers the dot-com collapse six years ago that wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. At that time, the NASDAQ peaked at $6.7 trillion in March 2000 then plummeted to $1.6 trillion by October 2002. Several companies and their executives – just like today – were accused or convicted of fraud for misusing shareholders’ money. Top financial firms like Citigroup and Merrill Lynch were fined by the SEC for misleading investors – just like today.

A $700 billion dollar bailout doesn’t seem so bad now, does it?

When you compare the two events, you will begin to see a lot of similarities. Our financial, resources, commodities, and real estate markets have seen a tremendous bull surge over the last few years; the tech sector saw a tremendous growth for roughly the same period of time. Both were followed by shorts and massive sell-offs. Both were subject to serious scrutiny from the government. And both affected our economy in a major way.

But the companies who survived the tech burst bounced back with a vengeance.

Just look at Amazon.com whose shares are up 14-fold from its low in 2001. If you would have taken advantage of the tech bust and put in $20,000 into Amazon, your shares would be now be worth $280,000 – not bad for a seven year investment.

I think the financial sector will eventually follow suit. Now is your chance to relive history by becoming the investors that believed in Amazon.com. Our biggest advantage in today’s market is that the entire financial sector has fallen behind – including banks with a good balance sheet.

Think about it. Not only will these banks (i.e. Bank of America, UMB Financial, and JP Morgan Chase – to name a few) emerge from this crisis, but they will be feeding off the weakness of their competitors by picking up their marked-down assets and gain further market share. JP Morgan has already started the feeding frenzy with Wamu and Bear Stearns as its main course. Meanwhile, the fire sale of Countrywide and Merrill Lynch went to Bank of America.

If these big banks are loading up, shouldn’t you?

Please don’t get me wrong, I am not saying that our current financial crisis is something to be overlooked or directly compared to the tech collapse. Our current financial crisis affects much more than just investors – it affects the world. I am simply putting our current market environment into a broader spectrum and using the tech sector as an indirect comparable.

We need to take a step back and not overlook the potential investment oppurtunities presenting themselves because of our fear. After all, it’s our fear and THEIR greed that led to our financial slump.

Everyone remembers the dot-com crash and everyone will remember this financial crash. George Santayana once said, “Those who cannot learn from history are doomed to repeat it.”

It’s too late to turn back the hands of time, so let’s ride the wave, bounce back and repeat history one more time.