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The Biggest Investing Lessons of the Past 5 Years

Everyone can agree that the investing world is drastically different in January 2013 than it was in January 2008 — particularly when it comes to stocks and capital markets. But how, and what lessons have we learned?

A new poll from CFA Institute aims to find out, asking certified financial advisers just that question. Here are the results:

The CFA Institute writes:

“Based on the results of this week’s CFA Institute Financial NewsBrief reader survey, investors’ expectations have not been changed by what legislators, parliamentarians, central bankers, or regulators have done in the nearly five years since the failure of Bear, Stearns & Co.”

Specifically, take a look at the answers. Of the 999 respondents, almost 6 in 10 say central banks and governments will continue to bail out troubled creditors. Just 3.6% of respondents said regulations since the financial crisis could prevent systemic failures down the road. The CFA Institute reports this is very similar to a 2010 poll taken immediately after the passage of Dodd-Frank.

Ugh.

Unfortunately, I share the pessimism about politicking, central bank bailouts and the loopholes in regulations. But unlike this CFA survey, I’d like to turn to more practical investing lessons than politics.

Here are three key lessons I’ve learned in five tumultuous years of investing:

  1. Low-Cost Index Funds Are King: Vanguard closed its best year ever in 2012 with a staggering $130 billion in deposits to its low-cost, index-based fund model. There’s a reason for that: ETFs can give normal retail investors built-in diversification as well as focused plays on investment “flavors” like global stocks or sectors or small caps — all on the cheap. That is not to say that I’ll stop picking stocks. But I’m self-aware enough to know that I don’t have to, that I trade too much and that sometimes I can make more money by sticking with the low-cost, passive model.
  2. U.S. Needs the World More Than Ever: The tangible example of China jumping Germany as the world’s top exporter and passing Japan as the No. 2 economy by GDP in 2010 shows this nation’s dominance. But the story is more than just China. For instance, in Europe, a debt crisis hit many big-name American stocks like General Motors (NYSE:GM). Any investor who thinks they can ignore the geopolitics of the Middle East or the machinations of the European Union is being willfully naïve. The nature of American business is becoming increasingly global, and thus our knowledge needs to be, too.
  3. Experts Are Everywhere (or Nowhere): The most important lesson I think I’ve learned is a humbling one — that many “readers” of my commentary as well as many experts I admire have the same market knowledge. Take this to mean whatever you want — that everyone is equally dumb or everyone is equally smart. But thanks to StockTwits, dozens of high-quality finance blogs and the glories of free data via Google (NASDAQ:GOOG) search and Yahoo! (NASDAQ:YHOO) Finance and SEC filings … well, the information gap between the little guy and the big guys is shrinking. There are no oracles or gatekeepers anymore who “discover” hidden stock or trends — and if they claim to, they’re selling you something. That’s not to say that expensive Bloomberg terminals and high-frequency trading algorithms are available to us all. But when it comes to ideas and insight, all you need is an Internet connection, ambition and a decent foundation of knowledge.

What have you learned in the past five years? It can be something as simple as “always use a trailing stop” or something specific. Share your thoughts below!

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • cr

    I learned if you sell at the market top, don’t get antsy and go long on anything on the way down, even if it looks like a total bargain. except short etf’s or the VIX. Oh and yeah, the pros are always trying to sell you something.