IT is a sign of the times that Japan lost a whopping 24per cent in 2008 and is still the best performing stock market of the year.

--TNP ILLUSTRATION: SIMON ANG, KELVIN CHAN

I showed this shocking data to our oldest daughter, age 13. She took one look and said, 'Wow, totally awesome.' Roughly translated, it means: 'This spells trouble if the economy does as badly in 2009 as the stock market did in 2008.'

It all links to the great recession which everyone expects next year.

The only question is, 'How hard will it hit?' The stock markets are telling us it will be very hard.

The market's sell-off was even worse for us since most foreign currencies declined relative to the Singapore dollar. It produced a double whammy of stock market and currency losses.

Hardest hit were Korean shares which lost 40 per cent, plus the Korean won fell another 44 per cent. It appears the total would be 84 per cent, but for statistical reasons, the loss is a smaller - but still huge - 66 per cent.

Australia was similar. It lost 45 per cent in the stock market and 25 per cent in the currency. Again, the total is 70 per cent but, statistically, the combined loss comes to 59 per cent.

The Japanese market performed best because its currency appreciated. Its stocks fell 44 per cent but the Japanese yen rose 20 per cent, bringing the total loss to 'only' 24 per cent.

It is easy to forget that one year ago, fund managers were pushing hard for us to buy their China and India funds, which had risen an incredible 97 and 53 per cent in 2007. Everyone who took that bet lost big with declines of 58 and 65 per cent in China and India shares in 2008.

Of course, the Singapore stock market's drop has affected us the most. The Straits Times Index plunged 50 per cent - half its value - in 2008. Ouch.

What lies ahead?

Predicting how bad this recession will be is possible.

The best guess is it will last through 2009 for the US and the recovery will come sooner for Singapore.

Predicting the stock market is different. Participants buy and sell according to the available information.

It means all market knowledge is already included in stock prices. To do better, you need special or insider information, which few of us have. Studies show even experts can't out-perform the market, although they claim they can.

It is best to forget about stock market forecasting.

Instead, decide how much to put into risky investments - like shares - based on your age, risk appetite and how much money you can afford to lock up for 10, 15 or 20 years. It can take that long to hit a new high after a market downturn.

For example, if you bought US shares in 1929, it would have taken 28 years - until 1957 - before you got back all your investment. Other markets have taken even longer.

It is true that stocks earn 10 per cent against 3 per cent for bonds - in the long-run. But that can be very long.

Doctor Money's Quick Quote:

'98 per cent of all statistics are made up.' (Is that a made-up statistic?)
- Author unknown

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