Mistakes from the last crash (dot.com)
I lost a lot of hard earned cash the last crash. It was cash earned through wages, and none was earned through the markets. I look at the market and say you make 10k and then lose 3, well, you've still done well. How much skin did you have in earning that 10k in the market compared to going to a job, deciding not to spend and invest instead? That's the money I lost the in the dot.com bubble, wages.
I had a financial advisor -- I got majorly pressured into having one (a husband and a mother-in-law). I wanted to pay down the mortgage but I kind of lost that negotiation. I knew nothing about the markets and supposedly a financial advisor would help me to make good investment choices.
Lesson number one was I learned not to trust someone else. After my money was gone I looked closer at my advisor's choices. Idiots like that should have their licence revoked.
Lesson number two was do your own homework. After losing so much I had a good look and I didn't even have to look that hard to see what garbage was recommended. I trusted the advisor to do the homework for me
Lesson number three was that even when something has crash it may still not be a low price. I figured seeing how these things had crashed, now they were low, right? Wrong, they crashed because they were bubbled and overvalued. If you look at some of the stocks from the dot.com bubble, well, some are still selling at about 2c on their highest bubble price and they slowly went down further for a while before flattening out.
A decision to keep a stock should not be because it has lost so much now, might as well keep it... Recheck the fundamentals. If market conditions are such that it isn't likely to make enough money to justify its market cap, then it is a sell. If you would not feel comfortable adding to the position, why hold it when you have guarantee choices and perhaps choices that would make make a better return.
I held my stocks that were now "low" and they continued to grossly underperform. Those "low" stocks were still pricy. By selling those "low" priced stocks and getting something else I've have done way better. My reasoning for holding was completely faulty.
Lesson number four was to stick to what I understand.
Lesson number five was to not worry about missing an opportunity.
Lesson number six was to preserve capital. I started my plan to exit the markets in January of 07. I figured retirement season would keep the market strong through the spring. I left the market in July 07. I tinkered back in during the August crash with 30-40% of my portfolio, but by then I had decided to protect capital, so I stayed at least half cash. By October I was questioning myself, "what the heck am I doing having anything in the markets? I expect it to crash. The risk is huge compared to the reward." I left the market. I didn't like the dot.com crash and figured I didn't want repeat, and this crash was going to make the dot.com crash look easy. I made back what the dot.com crash took from me and this time I wanted to keep it.
Lesson number seven, if your are going to panic, panic first.