Some lessons from 2009

Over the weekend, the New York Times published an article which brings up a few important points we've made at length and which are worth revisiting as investors consider the lessons of 2009.

The Times article notes that many investors underperform available investment vehicles. We have discussed this phenomenon previously, linking it to the situation we call "The Intermediary Trap."

The article also notes that many investors pulled out of the market and thus missed much of the powerful rebound that began in March. This reinforces the intermediary problem, as many of them pulled out based on the advice of an intermediary. It also raises another important lesson, which is the speed at which market moves take place. The Times article says, "History shows that market rebounds can be so quick that they are easy to miss."

This point cannot be repeated often enough. We ourselves made it in an article entitled "Don't get off the train" which we published on March 2, before the rally began.

Finally, the article ends with a good quotation about patience, tying it to patience with one's investment process. This kind of patience is easily confused with "buy and hold forever" type obstinacy, and this confusion leads investors to make serious mistakes. We discuss the distinction between the two in "Remaining calm without being blind or obstinate," "The importance of a proper sell discipline," and "Seeing beyond a huge false dichotomy," among other places.

The ending point about trusting one's investment process for long-term success is the most important one in that article. It ties all the lessons mentioned above together. The main problem with the intermediary trap is that it makes it almost impossible for investors to maintain a consistent investment process, and leads to a lifetime of jumping from one train to another, so to speak. We discussed this point in 2009 as well, in "The same thought process for 30+ years."

Investors would do well to consider these lessons as 2009 draws to a close.

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