History provides lessons you can always learn from
Photo by Yogendra Singh on Unsplash
A lot of millennials were not investing during the 2008 crash or they had just started. I was investing for 10 years at that point and learned some lessons that could help you today or in the next market crash. Market crashes all have similar signs that cause you to make bad mistakes that will hurt you years later.
In 2007, I had just returned from a deployment to Iraq and was getting ready for a second visit a year later. I was busy training and leading soldiers so my focus wasn’t 100% on the stock market and economy. The days were very long and the speed we operated at was very high.
I was investing monthly on a consistent basis in my retirement account and also made a few stock purchases. The few seconds I caught of the talking heads on CNBC were all about doom and gloom. They never had good news to report. I checked my investment account almost daily and kept seeing red in my portfolio as the stocks were going down.
Then it didn’t help that I was in a foreign country away from my family. The bombing wasn’t as bad as the year before but I was paranoid that another rocket was going to hit a building or even one of my co-workers. The last time I was in Iraq, we were getting bombed morning and night as several soldiers were injured. This time it was a little more peaceful but attacks still happened.
So my focus on investing wasn’t there100% of the time. The CNBC talking heads were the only voices I heard about the market and caused me to make some bad decisions.
A fool and his money are lucky enough to get together in the first place.
Gordon Gekko (Michael Douglas), Wall Street movie
During 2008 and 2009, I sold a few stocks I had picked up. The stocks were down about 50%, some were even lower. I had Starbucks, Bank of America, and a Dodge and Cox Stock Fund. My records show I sold them in 2009 as the worst had already happened.
If I held on these investments, I would have seen a positive return in a few years erasing the losses I had on paper. Eventually, I noticed a trend and starting buying good quality stocks that were beaten down because of the market.
At the time, many banks failed and were bought out by bigger banks. The Seattle Times reported 445 banks went under during this time period. These were scary times for everyone.
Many people who were close to retirement had to delay this as their investment accounts were depleted. There weren’t many safe places to place your money in the market except for precious metals. I decided to pick up some American Silver Eagle coins. Today precious metals are seeing a slow uptick in the market.
Spend each day trying to be a little wiser than you were when you woke.
Many of my investments were doing very well before the crash. I was chasing the high flying stocks and following the gains. When the market turned, I really didn’t know what to do. In hindsight, I should have kept investing but I stopped investing consistently.
After going through the crash, I made a vow to sell my investments if they met my rule. My new rule was to invest in stocks and if they made 100% I would decide to sell them or not. This was based on feeling and analyzing the market. If any of my investments faced competition that could hurt the stock, that was another sign to sell the stocks.
I invested early in Facebook when the stock hit the market. I was following when Facebook came to the market and bought shares when the stock first came out. As soon as the stock had its IPO (initial public offering), the stock tumbled. I held on until the stock rebounded about two years later. Eventually, I sold when Facebook was $106 and it met my sell criteria.
Other stocks soon reached my sell criteria of 100% as I had Bank of America, Chase, LinkedIn, and a few others. One stock I sold early for a gain was Fitbit and this was below was criteria. Fitbit was doing well but there was a lot of news that Apple was going to get in this space. I sold Fitbit at the right time because the price dropped from $45 to the single digits.
Landlords grow rich in their sleep.
John Stuart Mill
I had a few rentals and during the 2008 crash, the price of the home dropped of course. I wasn’t too concerned but one of my rentals had trouble keeping a tenant in place. The city was experiencing a lot of issues hiring personnel so my rental was vacant for about a year.
This was a big strain on my emergency savings. Fortunately, I was able to pay this home off a year ago, so the added pressure wasn’t there this time. Fortunately, I have tenants who were able to keep their job and pay their rent.
Could the real estate market make a turn for the worse? It is still very possible. The US government placed stop gaps to help tenants and real estate owners if they had a loss of income. You’ll have to wait and see how this turns out in a few years.
If you live fake rich now, you will retire real broke later.
To avoid any issues, I keep an emergency fund to cover my rentals as well as the usual last-minute emergencies which happen when you’re not expecting it. You don’t want to charge your credit cards so the emergency fund covers any last-minute expenses.
If the mortgage on a rental costs $1030 a month, you should have at least four to six months set aside. You never know when the property becomes vacant since you’ll have to cover the mortgage until a new tenant is found.
Then you’ll need money to cover any repair costs that your insurance doesn’t cover. Some repair costs won’t meet your home deductible and you’ll have to pay for that expense.
With the stimulus money, I added some to my emergency fund. The other half went into cryptocurrencies which I’ll discuss next.
Paper money is going away.
I added cryptocurrencies three years ago. At the time I thought the stock market was overvalued and due for a correction. Since then, I haven’t added more funds to the stock market except for a couple of hundred dollars.
Part of me felt correction was coming one of these days which it did earlier this year. The stock market couldn’t keep going up forever since the last time it corrected was 2009. There was a minor correction in December 2018 and then the US-China trade had small effects on the stock market but not big enough to see a sale in the stock market.
Since I started investing in cryptocurrencies, I feel this gives me another avenue to increase my wealth that is not tied to the stock market or real estate. I like this type of diversity where my eggs are not in one basket such as stocks or real estate. Each one is in its own separate basket. Each asset class moves on its own at different times in the market.
This has been an unusual market as many expected the crash in March to last longer than it. The fast pace of the Federal bailouts and low interests stimulated the market averting a lengthy recession. Though job losses happened the effects of the coronavirus on the market were short-lived. The virus is still affecting parts of the market and it is too hard to tell what direction the market will go over the next few months.
A key indicator of the stock market and economy could be the US Presidential election which is less than three months away. A Biden presidency could cause the market to dip initially before new money pumps other sectors of the economy. A re-election byTrump could keep stocks on the same path they’re on now.
Until then, I’ll continue to invest in cryptocurrencies, while increasing my positions in Tesla and open new positions in Apple this week. I sold some winners over the past week to help cover the cost of these additional stocks. Overall, I’m still playing it safe in this market.
Do you have any lessons from the 2008 crash?
Tom Handy is a top Writing, Finance, Investment, and Bitcoin writer on Medium, and the father of two kids. He retired from the Army and sits on several non-profit boards. You can find him on Twitter @tomhandy1.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.