Skip to content

It’s bound to happen

Last week’s stock market drop was unprecedented. Scary.

But if you lived through the start of the financial crisis and the Great Recession, last week didn’t feel as scary. The coronavirus is something we need to be mindful of but the financial crisis was something completely different.

When Bear Stearns collapsed, there was talk about an entire financial meltdown. Institutions make bets with one another and then they make bets on those bets. It’s like a line of dominoes… the system collapses if someone in that chain can’t pay out on claims… and that’s what happened.

Not only was there panic, it was legitimate too. We have to see what happens with the coronavirus and its impact on the economy of the world but no one is arguing all trade will collapse immediately and forever.

As you think about your investments, one thing to think about is that if you are a long term investor, you will see falls like this. I’m 39 and I’ve seen three major ones (2001 dot com bust, 2008 Great Recession, and now this most recent one 2020 coronavirus).

The Price of Admission [Compound Advisors] – “Before investing, many will tell you that they can easily stomach a 20% decline. They can “tolerate” such a risk. But when it actually happens, and real dollars are at stake, the true test begins.”

Volatility and the Day I Met John [The Human Advisor] – “In 2014, the world learned about Navinder Sarao. As a young man in London, Sarao taught himself how to trade stocks from his bedroom, starting in 2003. Over the coming years, he learned high-frequency traders were squeezing people like Sarao out of the market. So, Sarao built a system to outfox the high-frequency traders. We will never truly know precisely how much responsibilty Sarao held for the Flash Crash of May 6, 2010, but it appears he was involved. In 2016, Sarao was extradited to the US. He plead guilty to the brand-new offense of “spoofing” along with wire fraud. Both are felonies.”

Is there such a thing as good debt? [Hope + Cents] – “The idea is that if the debt is going towards an asset that will appreciate — increase in value — then that is good debt. If it’s going towards something that will depreciate — lose value — then that is bad debt. Mortgages and business loans? Good debt. Car loans, credit cards? Bad debt. That’s what they say. […] But there is a problem with categorizing debt as either good or bad. In fact, there are a few problems.”

Have a great day!