Columnist David McEwen

If you are the CEO of a bank and all your competitors are reporting big losses, the best thing to do is follow suit in the hope that your shareholders will see the losses as not so bad in comparison with the overall sector. By announcing a standalone loss later, matters will only look worse.

Share prices appear to have stabilised and markets are well above the lows set earlier this year. Short-term interest rates have come down, including in New Zealand although the Reserve Bank has yet to bring down the Official Cash Rate (OCR).

On the other hand, I am a fan of the ‘cockroach theory’. This suggests that if you see one cockroach, there are almost certainly others that you haven’t seen yet. The same applies to bad news from investments. If greed and incompetence have led to bad lending and poor investing in the mortgage markets, then chances are it has led to lousy decisions in other areas. My pick is that there will be more bad news to come.

However, that is not to say investors have to start digging a trench and putting on their tin helmets. For those who are prepared to be patient, there are some attractively priced assets out there.

Since none of us can predict the future, the best strategy in my opinion is to invest conservatively, diversify and look for investments than can withstand bad news. These investments will do okay if the gloom returns and will do even better when the markets eventually are ready for some good news.