Lessons From 2008's Market

Lessons learned from a rough 2008.

1.Keep adequate cash on hand at all times.

• Were it not for us contributing to our FSA’s and maintaining a positive balance in our savings account, those trips to the hospital in 2008 would have hit us pretty hard.

2.Bubbles can go longer than fundamentally possible.

• Markets react in extremes in both directions and the very good news/very bad news tends to come out at the top/bottom. Just think of where oil was 6 months ago and where the ‘experts’ said it would be in 2009. Now think about where the ‘experts’ are saying oil will be in 2009.
• The majority opinion rarely turns out to be correct in the financial markets and until they prove to be correct more often than incorrect, we will always have excesses in both directions.
  

3.Everybody’s investing goals are unique and should be molded to an individual’s personal risk tolerance.

• Make a plan and stick to it. Don’t be concerned about what other people are doing because their style and time horizon may be completely different than yours. Instead of chasing the weekly leader, take a step back and try learning why that person is the weekly leader.
• Every dog will eventually have his day. It took almost 8 years for the predictions of ‘the coming depression’ to finally become reality on the front page news. (And we all know not to listen to the front page news...)
  

4.The market will eventually get the best of everybody in the long run.

• The smartest of minds within the investing realm have been hammered this year and all of us who hit it big in 2006 should be humbled at this point. Mistakes are easily covered up in a bull market, but a bear market requires precision because being wrong can be detrimental.
• Bill Miller's 15 year winning streak has almost been completely wiped out in a few months.
• http://www.tsptalk.com/mb/showpost.php?p=185355&postcount=431

The market of 2008 has greatly challenged the investing beliefs preached by the gurus in which I have based my financial instincts upon. Is buy and hold dead? Is Indexing dead? Is sentiment still a reliable indicator? Will there be nothing but bear market rallies from here on out? Is the dollar doomed? Will trading be the only way to produce gains in the future? Nobody can say for sure, but most of the viewpoints and suggestions in the financial mainstream tend come from a salesman with an agenda in which he/she will benefit from if you follow their advice. Without fees, there wouldn't be too many winners on Wall Street.

At the end of the end of the day, 2008 was merely one at-bat in a long season with plenty more at-bats to follow. Me, I know I was caught looking this year at strike three; and the Bear- he made some tough pitches that have made many humble investors. For now I’m keeping my head up, walking back to the dugout and gently setting my bat and helmet on the rack, but eagerly awaiting the next time I dig in to the batter’s box. Until then, I'll be maintaining my long term posture along with an asset allocation molded towards a global equity strategy.

 

[coolhand]

Excellent points Bullitt! Bear markets challenge everyone.

 

[CountryBoy]

Good post Bullitt,

I'm glad I'm here, because before finding Tom's forum, I was pretty much a neophyte when it came to investing. I learned a lot the past 3 years and did good with the great education I learned here from all of ya'll and how to take advantage of a bull market.

This past year, between being reduced to snail mail and the bear market pretty much has me frozen in place. Yeah it was pretty humbling.

But like you said we just need to reset our caps and get ready for 2009.

CB

 

[tsptalk]

Nice post Bullitt. After the 2000-2002 bear market, many people had a difficult time making the switch when it was time - that being going from bearish to bullish.

I had the opposite problem having a good year in 2000 because I anticipated the bad year, but I got bullish much too quickly, losing money in both 2001 and 2002.

This is one reason that I am reluctant to become bullish yet. It's only been a year and too many people seem eager to call the bottom. I suspect that the time to buy will come after the "I give up" attitude shows up, and I'm not so sure we are there yet.

2008 was the year of - you can't be too cautious. I was probably in the G fund 85% to 90% of the year and still managed to drop 35%. Pathetic. I don't think 2009 will be worse - but it could be bad again. Things are not better yet - and that includes the charts.

I just hope I can take what I have learned in the past and make it work for me, just what bullitt is saying.

Good luck!