And the king said: Lo! I saw in a dream seven fat kine which seven lean were eating, and seven green ears of corn and other (seven) dry. O notables! Expound for me my vision, if ye can interpret dreams.Quran (Yusuf: 43)
He said: Ye shall sow seven years as usual, but that which ye reap, leave it in the ear, all save a little which ye eat.
Then after that will come seven hard years which will devour all that ye have prepared for them, save a little of that which ye have stored.
Then, after that, will come a year when the people will have plenteous crops and when they will press (wine and oil).Quran (Yusuf: 47-49)
The story above of Prophet Yusuf (peace be upon him) seems apt to be reflected upon, after the market crash yesterday.
It reminds us of the economic cycle: “7 years of prosperity, 7 years of drought”; that there will be a bull market, and there will be a bear market.
Should the story be taken literally to imply 7 years of bullish market followed by 7 years of bearish market?
Personally, I’ve been taught and understood it to be a concept to illustrate the economic cycle. Furthermore, the ascribing of “7 years” in the Arabic language is figurative to describe a length of time.
The story teaches us to plan ahead:
- That in good times, don’t forget to plan for bad times.
- have you set up your Emergency Fund in times of need?
- Market volatility: “what goes up, must come down”
- when your investment is doing well, be prepared that a bearish market is up ahead
- what do you do when market becomes bearish? Do you sell off your investments or do you hold? Do you still maintain heavy in equities or do you start to switch to bonds?
- Short-term vs Long-term planning
- If you’re investing for the short-term (say 3 to 5 years), timing of entry/exit is crucial.
- If you’re investing for the medium to long term, keeping in mind your time horizon is more important. Dollar-cost averaging strategy could be employed, as well as portfolio auto-balancing. A multi-asset fund could be a core portfolio.
So do you act on emotions and market sentiments? Or do you adopt a rational approach in your investments?
Ultimately, it boils doing to how you plan ahead: your financial goals, objectives and time horizon. As illustrated in the following verse:
O ye who believe! Observe your duty to Allah. And let every soul look to that which it sendeth on before for the morrow. And observe your duty to Allah! Lo! Allah is informed of what ye do.Quran (Al-Hashr: 18)
Dr Haniff Hassan explained that this verse teaches us to plan ahead, for tomorrow, not just for the Hereafter.
But well, that will be another post, insha-Allah.