This article is part of the series: “How to invest? Words of advice for my sons”, by Lyubomir Lekov, founder of INVESTOR.BG and LEKOVI Foundation After five years of rise of the world capital markets something happened which many analysts expected for several years – a 10% correction. Alternatively said, most of the leading indexes lost approximately 10% of their value for the last ten days. The decline was most serious in Europe due to the criticism of the German Finance Minister Wolfgang Schäuble towards the proposals of the President of the European Central Bank (ECB) Mario Draghi. The critical remarks undermined the confidence in Draghi’s capability to realize his plans for the QE (the so called quantitative easing – a process of massive buying of finance assets thus infusing more funds into the financial system). Apart from everything else, many analysts doubt the QE in Europe is going to have a positive impact like the one USA’s economy experienced last years. ECB’s impossibility to deal with the deflation is yet another reason for the record number of European sessions with decline (as surprising as it may sound, when products’ prices fall compared to a previous period, the effect on the economy is bad, even though customers actually buy things at lower prices) Experts pointed out the sharp depreciation of the oil (around 30%) and the new Ebola epidemic as two more reasons for the beginning of the global decline in shares. It is interesting however to note that when critical levels of minus 10% were reached, the American media mainly discussed whether the global crisis will effect USA’s upsurge. In other words, they quickly adopted the position that the rest of the world entered a recession. Until recently, the comments were that the correction is healthy. Actually, the beginning of the crisis coincided with a report of the International Monetary Fund (IMF) which envisaged lower gross domestic product for the main economics. As if everyone competed to force the world into a crisis! The trigger was pulled on October 7th when IMF’s World Economic Outlook was published, projecting a 3.3% global growth in 2014, rising to 3.8% in 2015. The projections are 0.1 and 0.2 pp more pessimistic respectively, compared to IMF’s evaluation presented in July. All these figures hardly speak of “yet another end of the world” (usually this is what all the investors think about when they witness sharp decline of prices on markets). Still, there is a strict rule on the financial markets – bad news have greater impact than good ones. It is caused by human psyche and no power on Earth could change this attitude. This is why we witness huge plunge of the indexes in the last 4-5 years, reaching levels which we can hardly imagine. Then comes a moment (which no one can predict) when things turn, allowing market indexes to slowly and insecurely recover. Surely, things look different for those of you who have lost 12% of your money in 10 days and it seems that you can lose even more. The huge stress you feel is quite logical. There are two ways out – to sell out or to wait (for better days). In both cases the situation is quite painful – either you admit serious loss, or you hope things will eventually get better. Many other factors start interfering – for example, whether it is a matter of long fund, i.e. whether you could wait for years. In such cases experienced investors advise against panic and against the following sell out – quite possible at levels close to the bottom line. Sale should happen only if substantial and fundamental reasons occur and not just because other people do so. Of course, things look different if you are going to need the money soon – but if this is the case, you shouldn’t have invested in shares in the first place. So, let’s go back to “Europe” topic – after eight consecutive session of decline in October 2014 (an unprecedented drop since 2003; and the media knows how to reveal statistics to scare you even more), some analysts appear who start talking about recession. The world indexes were at record levels only a month ago and these same analysts thought global economy heads for a stable growth. It all looks funny (especially if you don’t invest in shares) but when you lose money you’ll listen to the analysts and wish to wring their necks – most probably they have never invested their own saving in shares. However, they are “brilliant minds” or economists as Bloomberg journalists like to call them. This is one of the reasons why each investor surely has the nerves to shake off the market panic and plan his own best moves in the current situation. A saying about the money is very helpful, too – if one thinks money is the most important thing, the situation could be even more painful. But if one assumes the philosophy money is just money, decision can be made in a rational and calm way. (The story about the “chicken shit” or the chicken droppings is my favorite in connection with the above said. It descends from an old Eastern proverb and offers a different point of view on money. The proverb tells about an imaginary country where the elders chose to use chicken droppings instead of real money. The rich started amassing more and more droppings while the poor never had enough of them. If you think about money this way, you will understand your own attitude towards it). For me, planning the level of affordable loss is the most reasonable approach. Having a plan will give you the option to easily make decision and exit the vicious circle of “should I sell or should I not sell”. I must specify that each crisis put the investors in different situation because the global markets are growing in the last 100 years, as a whole. If you bought the shares more than a year ago, you now have good capital growth and the crisis has just “wiped out” the potential profit.