Bad Days Bring Good LessonsOctober 22, 2012 Posted by: Joe Morgan, CFA
Should auld acquaintance be forgot
and days of auld lang syne?
For auld lang syne, my dear,
For auld lang syne,
We'll take a cup o' kindness yet
For auld lang syne
-Robert Burns (Lyricist)
As we wrap up 2008 it is important to reflect on both ouractions and the actions of others in order to improve ourselves.Mistakes are embedded in human nature, but so is the ability tolearn from them. Only our willingness to be honest with ourselvesand others stands in the way.
It is true that our financial system is rooted in the confidenceplaced therein. Taken in this view, we can (and have) described itas a "con" game. It is also true that as long as confidenceendures, the system works just fine with all participantsbenefiting from increased efficiency and productivity that comesfrom investment and consumerism.
The year 2008 holds important lessons for investors and it isimportant to explore them so as to avoid repeating them.
1.Know your investment partner.
Early in the year, many investors discovered their investmentpartner was working against them rather than for them. Asexecutives of major brokerage houses were dumping auction ratesecurities and other trashy investments from their personalportfolios, they were at the same time advising clients to invest.The lesson here is to spend time with your investment partner notonly with the goal of understanding the markets, economy, andinvestment strategy, but also to use your human nature skills tojudge whether this person has your best interests at heart. At theend of the day, you cannot know everything there is to know aboutthe investment community, but you should know whether you can trustyour advisor to stand by you in the midst of battle.2.Educate yourself and others onrational expectations.
No matter where your cash resides, it is your responsibility toensure the safety, liquidity, and yes, even to achieve anappropriate return. Keep informed of market interest rate levelsand what they mean for defining an appropriate return given yourinvestment strategy. At the beginning of 2008 five percent seemedlike an appropriate...Read More