Most of us, ourselves included, cut our teeth on the Great Bull Market which ran roughly:

  • For Equities: 1982-2000
  • For Fixed Income: 1981-2010?
  • For Real Estate: 1987-2006

Obviously, there were some regional differences but broadly speaking, the market for financial assets was bubbly. During that long period, we unlearned some good habits and picked up some bad habits.

Time to change toolboxes

Let’s not call them habits, let’s call them investment tools. And, let us metaphorically pack those tools into a toolbox. What would our Great Bull Market Toolbox look like? The biggest tool would have been our “Buy and Hold” Hammer. The wear and tear on this one shows that it was the tool we used the most. In fact, if “Buy and Hold” was the only tool in your toolbox, things worked out pretty well in the periods we outlined above. You may have had a special name for your “Buy and Hold” Hammer. Perhaps you referred to it as your “long term investment strategy”. Or maybe you worked the word “Core” or some other solid sounding phrase into the mix. The next favorite tool would have been the “Buy the Dips” wrench. This is the one you pulled out when the markets dropped like a roller coaster. Your hand might have shaken when you had to use this tool but again, things worked out pretty well. What tools were not in the box? Any sort of measurement tool was for wimps and the misguided. Efficient Market Hypothesis told you that the “price reflected everything we know” so what was the point of measuring. Sure prices were high but your parents didn’t know how to turn the house into an ATM machine, now did they? And when you got tired of portfolio managers consistently underperforming benchmarks, the industry invented low cost index funds and ETFs.

OK, I think you get the point. It is all easy to ridicule in 20/20 hindsight. The key thing to remember is that we are not trying to suggest that all of those tools are useless. Just that there is a time and a place. With the addition of a few more tools, you can be prepared for pretty much anything that the market can dish out.

Topics

  • Buy Low, Sell High vs. Buy and Hold
  • Diversification vs. Diworsification
  • Globalization and the Expansion of Asset Classes
  • Market Structure