Lessons From 2008

Back in 2008, I was a young, ambitious portfolio manager that had never seen a real crisis up close and personal. Over the span of a few months, I got a large helping of experience and humble pie as the Global FInancial Crisis engulfed markets across the world, causing massive wealth destruction. Without recounting that entire episode of market history, i’d like to convey some of my biggest and most memorable lessons and experiences from the Global Financial Crisis of 2008/09:

  • Never underestimate how volatile markets can become
  • When markets are in a panic there is virtually no limit to how far assets can become mispriced
  • Governments always lie
  • Someone else is always going to know something before you know (think bailout announcements, Fed announcements, etc.)
  • Leverage is deadly and it can be ruinous
  • The faster and more volatile markets become, the more methodical and less engaged a market participant should be (i.e. don’t overtrade or think you have to catch every move) – in fact, only trading at the market open and close is a pretty good idea
  • Never underestimate how far governments will go to save the system from collapse
  • Fundamental valuation analysis becomes utterly useless because all the inputs are wrong and constantly changing
  • Technical analysis becomes more powerful when utilized effectively in gauging risk and potential reward, however, standard support/resistance analysis is about as useful as fundamental analysis (i.e. not effective)
  • Having a meditation/yoga practice is priceless
  • Find your happiness within yourself and in other hobbies that don’t have anything to do with the market
  • The media will remain negative far past the market turn (when it bottoms and begins to turn higher)
  • Sentiment will remain in extreme bearish territory far longer than you thought was possible
  • Trader smaller
  • Always remember that narrative follows price, only all the time
  • Don’t try to “understand” the market or “explain” the rationale for why it’s doing what it’s doing
  • The market doesn’t care what you think
  • The bottom will come when 98% of market participants have given up on stocks and even some of the most die-hard bulls capitulate and admit they were wrong

And then the final lesson, which is probably the most valuable one in my opinion…

  • Stay in the game, whatever you do don’t risk it all. The greatest buying opportunities i’ve ever seen were in January/February 2009, and very few had the capital and the stomach to buy aggressively at that point.

This too shall pass, until then do what it takes to stay in the game.

 

DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.