What Have We Learned?

Now that we are definitely in a bear market and a recession, the length of which is unknown, it’s time to examine the lessons that have we have learned from the recent financial crisis.

Smart money doesn’t exist. This is the greatest and most persistent urban legend in the history of Wall Street. This has always been one of my pet peeves – the blind rush by investors into a stock after hearing some talking head tout it on TV. How many gurus owned Lehman, Bear Stearns, AIG, Fannie, Freddie and Washington Mutual? How many “smart guys” ran these companies? This economic cycle and bear market should bury the smart money legend more than six feet under. Rest in peace. As an investor, do your own research. You will make mistakes as I have, but they will be your own and you will feel better afterward.

Risk is common sense. Everyone understands risk. It’s intuitive. You don’t need a fancy quantitative model or a doctorate from the University of Chicago to figure it out. When an individual conducts his daily activities, he considers and accepts a level of risk. Try to cross a busy interstate on foot? That’s risky, and its common sense as well. Lever up 33 to 1? Well that’s risky too, and anyone’s intuition should have told them that too.

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