Bear Market Grads: What You Should Learn From the Financial Crisis
by Larry Swedroe and William Reichenstein
By March 2009, most U.S. and international stock indexes had lost at least half of their value in the current financial crisis.
Since that time, some indexes have managed a small rally, but all remain substantially below their peak levels. In addition, banks are in lousy shape, and governments around the world are running huge deficits and trying, seemingly in vain, to cure the financial ills that beset the world economies.
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There has been a litany of articles trying to lay the blame for the crisis. We do not propose to add to this literature. Rather, our primary aim is to discuss the investment lessons from the crisis, and to make positive suggestions for investors today.
As a background, we begin with a brief discussion of a few of the factors that contributed to the financial crisis. Then we progress to the discussion of investment lessons that can be learned and what investors can and should do going forward.
To read more, please become an AAII Registered User or CLICK HERE.
William Reichenstein , CFA, holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University. bill_reichenstein@baylor.edu.
Discussion
I am a new investor and find your information very educational and informative.
posted over 2 years ago by Alice from Georgia
Awesome article tying together things that I have learned (the hard way) while investing over the past 30 years. It pays to maintain a steady approach to investing. Don't be greedy, don't make big moves, watch the expenses, and don't go for gimmicks.
Well done!
posted over 2 years ago by Henry from Maryland
For additional details to follow the above strategy see William Bernstein's book, "The Investor's Manifesto."
posted over 2 years ago by Mark from Texas
Where do Convertible Bonds fit into the strategy...aren't you protected the same as your example of the Exxon bond, minus the 6% interest?..thanks, Don
posted over 2 years ago by Donald from Massachusetts
I hope that everyone in the SEC reads the article couple times per year! Then maybe the SEC will do a better job in the future.
posted over 2 years ago by George from Michigan
Easiest thing for the general "smart" investor to do is buy a low cost balaced fund i.e. Vanguard Wellington or Vanguard Star. Automatic balancing with broad low cost diversification.
posted over 2 years ago by Marvin from California
This is the 4th AAII newsletter I've read since recently joining. Each one has contributed to my knowledge and helped me make better decisions about managing my portfolio. Thanks.
posted over 2 years ago by Bob from Arizona
Re-balancing does not work: http://seekingalpha.com/article/63576-rebalancing-can-be-hazardous-to-your-portfolio
posted about 1 year ago by Bill from Texas
I have made a ton of money in hedge funds (CTAs) since 1995. 2% management fee and 20% incentive fee should never scare you. Returns quoted are inclusive of these fees. I was singing all the way to the bank in 2008 while others lost 50%+. Hedge funds and CTAs, are fantastic investments if you know what you are doing (same goes for stocks, bonds etc.)
posted about 1 year ago by Bill from Texas
High-yield [junk] bonds and convertible stocks might be too complex to the average investor. Might consider high yield mutual funds. Do an evaluation using Morningstar.
posted about 1 year ago by Bill from Texas
