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What Have You Learned From This Financial Crisis?

2 December 2008 4 Comments

This financial crisis had many effects. Some effects have been frustrating, some have been disastrous. While there are thing you cannot control, there are also some that you can. What you take from this crisis and what you learn from this crisis are things you can control.

It is so important to maximize every single opportunity in your life.  The current environment is definitely an opportunity for many things.  On one hand, it is an opportunity to buy some cheap assets (I’m not going into this in this post), and on another hand, it is an opportunity to learn some important lessons.  Let’s look at a few things that I am going to focus on during this economic downturn.

Learn to truly live within your means

Take the current economy to learn how to live within your means.  Think about it, if you went the next two years without buying a new TV, without buying a new computer or laptop, without buying a new fancy smart phone, without buying an entire new wardrobe and without buying a new car, would your life be a disaster?  No, it wouldn’t.  Your life would be fine, and it’s time to stop buying so much stuff that we don’t really need.  It’s time to jumpstart your savings but underspending.

This is the number one reason why we are in a tough economic time because people were over-leveraged and over-consuming.  It’s time to break this habit.

When it comes to social time, there are many options also.  Instead of going out to dinner, make dinner at home and go on a walk with your spouse.  Instead of running up a bar tab at Friday night, drink a couple beers around a fire in your back yard with some buddies.  For every occasion that requires significant spending, there is a lower cost, cheaper alternative which provides just as much quality time with others.  Start focusing on these activities.

Learn there is really no such thing as easy money

Here is a great lesson to learn for the rest of your investing career.  If at any point, you say to yourself, “Boy, this is really easy.  I’m making boat loads of money,” you better look out.  Whenever money seems easy, you need to really look hard to see if you are in a potential bubble.  Many people thought money was so easy during the housing boom that they continued to take out equity when home prices went higher.  Eventually when prices came back down to earth, they were left with enormous debt.  We saw similar actions with the dot com bubble (and any other bubble for that matter).

Learn this lesson now and you will save yourself a great deal of money in the future.  If money seems to be easy, think about selling because you might be at the top of a bubble that is about to go bust.

Learn to trust your guns and not the talking heads on TV

Back in 2007, I was extremely negative on the economy.  I figured we were just about maxed out.  The Dow was at about 13,000.  I sold much of my long positions except for oil and I went short the market.  Then the market continued higher up to where the Dow was as high as 14,000.  As I watched TV, the “experts” were predicting 2008 to be more new highs with the Dow hitting possibly 16,000.  Well, I bought into the analysis and covered my losing short position and re-bought into many long positions.

Looking back, I had the correct strategy from my “common sense” approach to the economy and to the markets, but I chose to listen to the nonsense on TV instead.  I would have done very well if I stuck to my guns.

Now, of course this is easy to say looking back.  But, what is definitely true is that these people really have no idea what they are talking about.  They are more wrong then they are correct, yet they are supposedly expert analysts.

So, I am determined to stick to my guns over the long term.  What does that look like in today’s market?  One area is that I’m buying energy stocks that are extremely low.  I really like the Ultra Oil & Gas ETF (DIG).  Collecting dividends from the cash rich energy companies while I wait for commodities to rebound.  I will accumulate this position as long as it takes for energy to rebound because I’m convinced that it will, in fact, rebound.

4 Comments »

  • Matt Peer said:

    Tell me Kevin, have you started buying back into CHK if you are convinced commodities will surge to levels that have no possible rationale behind them (oil $147/bbl for instance?)

    Commodities wil be depressed for about a year due to slowed demand, but then go back to higher levels, albeit not Jul. 2008 levels.

    You are correct in investing in energy companies that pay a VERY healthy dividend (XOM, etc.). Consider investing in mining, steel and railroads. The world is going to always need raw materials and a means to transport those raw materials. ArcelorMittal (MT) for steel, Freeport McMoRan (FCX) for mining, and Burlington Northern (BNI) for rairoads.

  • kevin duffey said:

    I have not bought more CHK. I don’t like their balance sheet and definitely lost some confidence in their CEO. I have bought some DIG tho.

    I think gold has a bright future also with our horrendous monetary policy.

  • torbjorn rive said:

    I agree on your DIG play (and CHK has no $$).

    Though I don’t have confidence that the market indexes will go anywhere special in the next 5 years, I do think we will have an oil rebound. When? Dunno. But DIG is probably a good one to accumulate on dips in the meantime.

    Also, you’re right about not getting ANY information from the TV. Blogs, yourself, and charts will do the trick. And maybe a subscription or two. One of the reasons I no longer deal with bank managed mutuals is because I saw that those people are just like my TV: no access to outside information, blindness, and programmed to spew what they’re told.

  • blogc2011 said:

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