If anything, a down-turn is a great teacher. People start to pay attention and take notice of the mistakes they made. This has been true for me and hopefully I will not make the mistakes that I made this time, ever in my lifetime again.
A lot of people share the same sentiment as me and hope that they don’t repeat their mistakes. But what if they err in identifying their mistake?
A person I know, jumped into stocks during the boom; traded like crazy and made a lot of money.
Just before the bust, he got a new job and it kept him really busy. Since he wasn’t able to trade, he decided that he is going to buy and hold now.
In the next few months, the market tanked and he lost his shirt.
Guess who he thinks the culprit is?
Buy And Hold.
His reasoning is as follows:
He was making a lot of money when he was trading, then he stopped trading and became a long term investor — see where that got him?
To me, this guy is making a major error in judging his mistake, but, it is a very human error.
The only other reason to for his loss would be:
He was not a financial genius and just entered the market at the right time, he benefited out of the general euphoria and his profits had nothing to do with his own brilliance. When the market tanked, he made a loss, much like everyone else and there is absolutely no difference between him and anyone else.
It is easy to see which reason is more palatable.
Until the time I find someone who thought flipping houses was good and the only reason he is upside down on his mortgage is that he decided to live in his house — this is the worst lesson learnt from the recession.