Money Lessons of a Lost Decade

The Wall Street Journal carried this piece listing some
lessons from the "lost" decade.

I very strongly disagree with the notion that the first decade of the current millennium was in any way "lost" from a financial perspective. In spite of all the volatility (SARS in 2003 and the credit crisis in 2007 /8), it was a good decade financially for the traineeinvestor household. Most of my peers also did well during the decade. In part this was because we were all at the stages in our careers where promotions and rising incomes produced higher savings levels and in part because those rising savings levels arrived at times when the markets (real estate, equities) were either rising or had been weak (i.e. cheap).

One thing I would take away from the last ten years is a repeat of the same lessons I took from the 1980s and the 1990s (and from reading plenty of books on financial history). Market volatility is normal. Extreme volatility is not as uncommon as you would expect. Bubbles and the subsequent burstings can be expected from time to time. Learning to live with volatility and uncertainty is fundamental to being a successful investor.

As to the items listed in the article, these are almost all useful points to remember. I particularly like the statement that value is an absolute not a relative concept. While this is not strictly true (comparatives are important), I always hesitate when I see an analyst claim that a company deserves to trade at a premium to its peers.

The one point which I consider to be dangerous is to have the courage of your convictions - while this is fine if it means a willingness to take risks in order to generate returns, it is a very dangerous position to take when things start moving against you. Sometimes it is better to admit that you are wrong, deal with the consequences and to move on.