Every market cycle – bull or bear – provides opportunities for us to improve our investment process, and the last two years were no exception.
 
The best thing to do is learn from what happened and apply those lessons to your future investment strategies and circumstances. Here are five vital lessons from the recent bear market.
 
Lesson 1 – Keep your cool
This is the most important learning from recent times. Through market cycles, it’s easy for investors to react emotionally – whether through over confidence in rising markets or, equally, reacting with fear in falling markets.
 
However, we know that the best way to reach your financial goals is to remain cool and stick to your long-term investment strategies. History has shown us that markets tend to recover just as quickly as they fall, just as we saw in 2009 when the Australian sharemarket enjoyed a significant recovery from March through to December.
 
Let’s look at two investors to ask the question; “After one year, did staying the course make sense?”
 
The orange line in exhibit one shows the growth of a $10,000 sample 70/30 balanced portfolio from 1 January 2003 until the end of 2009. The chart shows what happens to the portfolio’s value as the result of two different scenarios:

As referred to in our August 2009 newsletter, there have been some significant changes to the application of the margin scheme for certain property transactions.
 
The changes only relate to the calculation of the margin scheme where you purchased the property:
  • As part of a GST free going concern;
  • Under the GST free farm land concessions; or
  • As an associate for no payment.
Where the margin scheme is used to calculate the GST payable upon subsequent sale of that property, the margin is calculated as the difference between the vendors purchase price and the sellers sale price. Broadly speaking, you are also not entitled to use the margin scheme if the vendor was not entitled to apply it when they sold the property to you.
 
The following example highlights the changes:
 
Fred sold a property to Bill in June 2002 for $300,000. Bill then sold the property to George for $630,000 in August 2007. As Bill and George intended to farm the land, the property was sold under the GST free farm land concessions and hence, GST was not levied on the sale of the land in both transactions.

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