10 Things I Learned From The 2008 Market Crash

A lot of unthinkable has happened over the last one year in the financial market. The collapsed of the finance giants, unresolved fate of the auto giants and a billions dollar scam that really brought the phrase “falling like a rock” to a whole new level.

After going through some of my old financial statements from 2008, I have come up with a list of top learning that I would like to share with my readers, if there is any at this point of time. Hopefully, this list will remind me not to make the same set of silly financial mistakes in 2008.

10thingsIlearned2008marketcrash

The top 10 things I learned from the market crash:

1. Newton’s law of gravity do applies to financial market

In the world financial market, it is proven time and time again that what goes up must come down, and what goes way up high usually comes down with a CRASH! Do not even touch a stock, commodity or even a currency if it has been trading way up high for a long period of time. A smart investor will buy low and sell high, not the opposite.

2. Murphy’s law of the financial market

Accept the fact that we are in a financial crisis and be mentally prepared for more bad news when you least expected it. Learning the market history and by diversifying your investment can help keep you from a financial panic. Even the greatest investor go through periods of bad performance. A smart investor will wait with patience until the bad turns back to good.

3. If it sounds too good to be true, it absolutely is

If you smell a rat from a fund manager, he probably is one. Anyone who offers regular return at low risk in a short or long period of time is probably a fraud. And anyone who listens to him is probably an idiot.

4. When in doubt, don’t buy

If you are unsure whether to pick up a stock, don’t do it. If you turn out to be wrong, your fund is still 100% intact and happily sitting in your account. But if you turn out to be right, you have save yourself lots of money. And the best part is, there is no risk involved. 

5. Have more than one basket to place your eggs 

Spread your investment across local and foreign stocks, bonds, commodities and currencies. No matter how much you like your job, don’t bet all your retirement funds in your own company. The workers in Lehman Brothers liked their company also.

6. Be an expert

Don’t be a lazy investor, learn what you are investing in. You can become an expert investor if you put in 10,000 hours of reading and learning everything you can find related to your investment. Start by dissecting a company that you are interested. Compare the return against the overall market through different time periods. Find out what will cause this stock to go down and ask if the people recommending this stock have their own money invested in it.

7. Trade like a tortoise

Trading costs will consume a significant amount of your fund before you even make any profit out of your investment. You can chalk up a large amount of brokerage fees if you trade too many times. If you want to save money, shop around for the best brokerage rates and trade at tortoise speed.

8. Invest like Sherlock Holmes

Investigate the background of a company and the management before you lay any funds in it. Check the financial statements and analyze the CEO letters to investors before you buy a stock. Read the prospectus and annual fund manager reports before you buy a mutual fund. Always keep a lookout for tell tale signs of failure.

9. Track net worth, not the changes

Focus on your net worth and not on the changes of each individual investment to stay calm in this financial crisis because your mood can make a huge difference in how you perceive risks. Don’t buy or sell your investment on the spur of the moment.

10. Find your financial demons

You have to find out what is your financial demons, where they live and why they’re making you poor and how you can get ride of them. Your financial status  today comes from the financial decisions you made yesterday. You owe everything to yourself, your future depends on you.

This is an article from The Brandless Blog.

Last 5 posts by Rendell

January 2, 2009 · Filed Under Finance and Investment

Comments

3 Responses to “10 Things I Learned From The 2008 Market Crash”

  1. When Market Is Bad, Payoff Your Mortgage : on January 6th, 2009 5:10 am

    [...] Learn from the 2008 market crash, things can get worst when you least expect it and I call this the “Murphy’s Law of the financial market”. [...]

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  2. Jonathan MullerNo Gravatar on January 13th, 2009 8:32 am

    Nice wrapup of the new year. Sadly, I’ve learned some of these the hard way. I put money in a mutual fund right before the crash. Like literally days before. Yeah… That was a bad move… Who would’ve known, they hadn’t had a bad year in like ten years.

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  3. RendellNo Gravatar on January 13th, 2009 9:16 am

    Oh, isn’t it frustrating to see the mutual fund drop like a falling rock.

    Personally, I have bought most of my mutual funds back in 2006 and early 2007, they are about 50% in profit before the storm arrives.

    I sold them all back in Jan 2008, and took back (JUST) my initial capital. The market is crazy isn’t it?

    By the way, thanks for visiting!

    Rendell

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