The Elements of Investing: Easy Lessons for Every Investor, Updated Edition

VI

TIMELESS LESSONS FOR TROUBLED TIMES

Since Elements was first written, investors have lived through harrowing economic times, with unprecedented market volatility. Toward the end of the first decade of the 2000s, it appeared to some observers that the financial system was likely to self-destruct and that capitalism was running in reverse. Rather than “the Great Moderation,” the label often given to the stability of the preceding period, the faltering economy engendered comparisons with the Great Depression of the 1930s. Many European nations suffered a debt crisis, and the very viability of the Eurozone was widely debated. The stock market lost half of its value. The entire decade was often referred to as “the lost decade” for investors.

It is not surprising, then, that many investors simply abandoned the stock market. The volatility was just too frightening for many people. The stock market seemed to be too risky a place for retirement savings, too unnerving for ordinary investors to handle. Moreover, some professionals, particularly those whose financial interest was enhanced by frequent trading, announced the death of “buy and hold” and proclaimed that the only way to be a successful investor was to “time the market.” “Diversification is dead” was another common bromide. “Today's stock markets are too highly correlated,” so-called experts said. When markets go down, “there is no place to hide.” Small wonder that investors could get thoroughly confused as they listened to this ...