Not learning from history

I have always wondered what we would have done during the big market crash in 2008 due to the Global Financial Crisis if we had the same current asset portfolio then. It’s a thought experiment because it’s easy to run through the logical sequence of actions when you are not under pressure. Much tougher to execute when you are actually in that environment. So we can only imagine what it would have been like and how we would have reacted.

In 2008, we were in our 2nd year of university with little savings, no full-time jobs, no investing experience and not vested in the markets. We felt the impact of the subsequent economic recession though as it was a challenge finding entry-level jobs after graduating. I don’t consider it a missed opportunity because we were never in the position to take advantage of it. I used to think that if I was working with income and savings, I would have gone in aggressively then and profited from the market recovery.

The benefit of having friends and colleagues older than you is that it teaches you a thing or two about humility. They were in that situation 10 years ago and the lesson I keep learning from them is that nothing ever goes as planned. A combination of unfortunate events (when everything goes wrong at the same time) can derail even the best laid plans. And the window of opportunity only lasted for less than 1 year. Which means it’s easy to miss since time can pass much quicker than you think when you are caught up with everything else.

Those who do not learn from history are doomed to repeat it. Sound financial advice that I don’t practice often enough because I admit that I’m not a big fan of learning from history. I’m aware of these historical financial events and what caused them but I try not to look beyond them. The causal factors might be useful in predicting the next big market crash but that’s not what I’m interested in.

The thing that fascinates me is how differently people reacted to the same event, especially couples that would have been our age then with similar financial circumstances. When faced with what should have been a great wealth-building opportunity (in hindsight) in their lifetime and probably for the first time for such couples, most of them turned to safety and moved out of the markets. Some never got back in while others have become more conservative. In short, it totally changed their outlook on saving and investing even though it was a decade ago.

Which makes me wonder what are the factors that allowed the minority to be brave enough to be aggressive with their portfolio allocations during the same period of time to take advantage and make big profits. It’s probably a combination of the following:

• Did not get retrenched
• No significant liabilities such as high housing and credit card debt
• Low monthly expenses
• Not over-invested with significant cash funds on standby
• Understand which asset type (e.g. shares, ETFs, properties) to be aggressive on given the amount of cash on hand
• No emergencies
• Suitable investment mindset

The odds of me being in that minority decrease as each of the above turns against me. I know I’m not ready for the next big market crash and I hope it doesn’t come anytime soon. I get better each month as my asset portfolio allocations improve while I chip away at that large mortgage over time. It’s painstakingly slow work and I keep reminding ourselves to be patient.

Our current approach of balancing spending, savings and investing relative to our income and derived utility/satisfaction level is getting the job done. Sometimes, I feel like speeding it up but I know this can be costly. It’s already quite delicate and tipping the scales to one side at the expense of another can have disastrous consequences. So we take it one step and one month at a time while doing what we can to enjoy the process.