As the wheels fall off the market, now is a good time to reflect on some of the timeless lessons we learned during a very specific period in time.
- Nothing lasts forever. When growth stocks were going up every day, it felt like it would never end. Now that growth stocks are going down, it feels like it will never end. Everything ends, eventually.
- Survival is the most important thing. Your portfolio must be able to weather euphoria, panic, and malaise.
- Risk management is most critical when it feels like you’re getting punished for managing risk.
- Nothing is a perfect inflation hedge. Not gold, stocks, crypto, or cash. Different inflation hedges work in different inflationary regimes. No one size fits all.
- Diversification is the only answer to an unpredictable future. If everything is working, you’re not really diversified.
- Interest rates matter a lot. The cost of money is the lifeblood of the economy and the psychological north star for investors.
- Nothing is risk-free. The S&P 500 is down 16% year-to-date. Intermediate-term “risk-free” government bonds are down 20%.
- You’re not a genius on the way up or an idiot on the way down.
- When everything is going down, everybody loses money.
- Analogs are dangerous. We know how things played out in the past. That doesn’t tell us how things will play out in the future.
- The more confident somebody seems, the more cautious you should be in taking their advice.
- Inflation is unpredictable.
- Memes are not fundamentals.
- Nobody knows what will happen next.
- There are no new paradigms.
- Past performance is not indicative of future performance. Past behavior is.
- Too much leverage will eventually come back to bite you.
- Cash is not trash.
- You didn’t know this was going to happen. You don’t know what’s going to happen next.
- Investing is hard.
It’s important to never let a bad market go to waste. Our portfolios might be down, but we can learn and grow from experiences like this.
