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Lessons from the Stock Market Crash of 2008

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December 05, 2008 – Comments (1)

A few days ago, I heard an editorial on PBS/NBR. They were wise words that are still with me, so I have decided to crib them.

THE RIGHT LESSON

Stocks can go down. OK, you have cash to invest for savings or retirement. If you read any financial books or columns (including FOOL ones), you will be advised to invest in stocks rather than bonds or Treasury paper or CD’s, because you will have more money in the end. Why? Because you are being rewarded for taking risk. Many have interpreted this to mean that stocks cannot go down. Well, the current stock market proves otherwise. If you have invested in the stock market for the past 10 years, the amount you earned is NOTHING; yes, zip, zero, zilch, nada. You would have been no worse off if you had simply stuck your money into a mattress. Investing in the stock market is NOT a sure thing.

THE WRONG LESSON

IF ONLY you had seen the crash coming: you could have sold at the peak, held cash till the crash, then gotten back in at a huge discount; you would be smiling like the cat that swallowed the canary. C’mon: get real. Mutual funds are run by financial professionals in control of $100B’s; they can dissect and analyze a 10K along with the legal gobbledygook in small type in the notes at the end in about the same amount of time it takes you or I to tie our shoelaces. Even THEY did not see this crash coming; what makes you think that you, a duffer who gets most of his financial info from the occasional column in the WSJ, believe that you can out-think these financial pros?

1 Comments – Post Your Own

#1) On December 05, 2008 at 10:34 PM, TimothyVR (< 20) wrote:

Why would anyone think stocks cannot go down? I don't understand that. When did anyone get the idea it is a sure thing?

The current decade has been a wash. But it follows two spectacular decades. The 70s was also decade of no return. But it also followed two outstanding decades.

That seems to be the pattern of the financial markets.

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