10 sensible lessons from the 10 years after the financial crisis


Everyone seems to be writing a “10 years after the financial crisis” post, and most of these center around “HOLY SHIT DEBT IS GOING UP AGAIN!!!!! HOW DOES NOBODY LEARN FROM THE CRISIS!?!?!”
Here are 10 sensible (non-sensational) lessons 10 years after the GFC.

#1 Fear sells

Over the past 10 years, mainstream financial media and much of Wall Street has pumped out a never ending supply of “why the market ‘might’ crash” stories. This is because fear sells.
Fear sells right now because of “recency bias”. People tend to focus more on the recent past rather than the distant past. Everyone remembers the market’s back-to-back 50% declines from 2000-2009. But how many people remember the 26 year bull market from 1974-2000?
Remember: mainstream financial media’s and Wall Street’s job is to get your attention. If they have your attention, they get:

  1. Ad dollars (in the case of media)
  2. Investment dollars (in the case of Wall Street).

In essence, financial media and Wall Street’s job is to market their stories and investment thesis to you.
As Amy Meissner would say (sorry to steal your lines Amy), a marketer’s job is to either:

  1. Trigger your biggest desire, or…
  2. Trigger your biggest fear.

During the 1990s, triggering your biggest desire was financial media & Wall Street’s #1 pasttime. Financial media was filled with “buy this IPO, which will go up 400% in 1 week!” Everyone wanted to become a millionaire overnight.
Today, it’s very hard to become a millionaire overnight with some get-rich-quick scheme. So financial media and Wall Street has shifted 180 degrees and decided to constantly trigger your biggest fear: “here’s why the market will crash”.
With that being said…

#2 It pays to be an optimist

The stock market and the economy move in the same direction in the medium-long term. Fact: the stock market goes up more often than it goes down.

So why does the stock market go up more often than it goes down? Because the economy expands more often than it contracts.
In the grand scheme of things, the economy is really just a reflection of human progress. Humans have made tremendous progress since the Industrial Revolution. Over the past 300 years, those who bet against humanity have lost in the long term.
Since the stock market goes up more often than it goes down (statistically speaking), by default pessimists are worse market timers than optimists.
It’s important to note that there’s a difference between being a rational optimist (focusing on the data) and being a blind optimist (being a permabull). Here at BullMarkets we try to be rational optimists. Focus on the data, and watch out for real warning signs

#3 big problems aren’t going to be esoteric

Everyone’s constantly looking for reasons “why the stock market/economy will crash like 2008”. They dig into very esoteric data series to support their bearish thesis.
But the reality is very different. Big problems are going to have VERY CLEAR AND OBVIOUS warning signs before they develop. The only people who didn’t foresee the 2008 housing/stocks/economic crash were blind to widely followed economic data.
This chart demonstrates that housing crashed from 2006-2007, 2 years before the financial crisis began.

#4 Ignore the gurus. Focus on facts and data

Mainstream financial media loves to quote big name hedge fund managers, billionaire investors, or other “gurus” who “forecasted” the last financial crisis.
Except here’s the kicker:
Over the past 10 years, most of the gurus have done no better (if not worse) than “buy and hold”.
Warning that the stock market has been in a bubble from 2011 – present doesn’t make you a “genius”.


Over the past 10 years, hedge funds have consistently underperformed the S&P 500, regardless of whether the market was going up or down! The average hedge fund doesn’t make their money on performance fees anymore (because the average hedge fund doesn’t perform). Hedge funds make their money on asset management fees. In essence, a trading game has been turned into an asset collection (i.e. marketing) game.
There are some exceptional hedge fund managers and gurus out there of course. David Tepper is one of them. But as a class, gurus are no better than your local mom and pop. The only difference is that they wear a fancier suit and stroke their chin on CNBC.
Here’s a recent example. Nobel Prize winner Robert Shiller sees “bad times ahead for the stock market” as of September 2018.

Except Shiller has been calling the stock market “overvalued” for years. “Overvalued” is code for “this stock market has gone up a lot, I don’t understand why it’s going up, but I think it will ‘eventually’ go down”. ‘Eventually’ can be a long time.




This isn’t to call out Robert Shiller on his failed predictions. It’s simply to state that most gurus are no better than the average Joe at predicting the stock market. Base your investment/trading decisions on their opinions at your own peril.
Shiller’s mistake comes down mostly to one thing: he bases investment decisions mainly on “valuations”.

#5 Valuations are very poor timing indicators

Pundits have been calling the stock market “overvalued” for every year over the past 10 years.
Valuation indicators ARE NOT useful for timing the market. And timing is critically important to everyone who is not Warren Buffett.
From 2017:

From 2016

From 2015

From 2014

From 2013

The stock market has been consistently overvalued from 1995-present. Yet if you sell because “the stock market is overvalued”, you would do worse than buy and hold.
Valuations aren’t as useful as most people think.

#6 Fundamentals are important

Predicting the stock market’s long term direction isn’t hard. Just look at the fundamentals.
And stop speculating about “when will the economy start to deteriorate”. Just look at the leading indicators.

#7 Oversimplification is the enemy of performance.

There are people who make trading far more complicated than it needs to be. There are also people who oversimplify things.
For example, I remember hearing in 2013 that “a bear market happens every 4-6 years”. Well it’s been 9 years and counting since the last bear market.

#8 Politics is the enemy of performance

Too many traders and investors make their market timing decisions based on politics and their political biases.
Politics is mostly just noise.

  1. Remember how Obama’s financial regulation was supposed to “cause a bear market”?
  2. Remember the “fiscal cliff”?
  3. Remember how Trump’s election was supposed to trigger WWIII and a stock market crash?

#9 Focusing on the short term kills performance

A lot of short term traders have Itchy Finger syndrome. They feel the need to trade. The real money is made by being right and sitting tight. Short term traders tend to underperform long term traders. This is because no matter what crazy combination of technical analysis you use, the market’s short term direction is mostly random and unpredictable.
Every single short term trader has had this experience over the past 10 years:

  1. The market goes up. Oversold! Time to short!
  2. The market keeps going up…

#10 Focus on what you know

How many times have we heard the phrase “buy emerging markets because they’re cheap!” over the past 10 years?
Instead, emerging markets have underperformed the U.S. stock market significantly over the past 10 years.
Focus on the market that you understand best. Don’t jump in and out of markets.

2 comments add yours

  1. Related to Point #8, I would say that the news is short term noise most of the time.
    One should develop a systematic approach to buying and selling stocks. There is no way to have such an approach from acting on whats in the news. Acting on the news is really acting randomly.

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