As I reflect on this crisis period so stuffed with opportunity but also so full of pain and terror, I am struck with how hard it is to be an investor and a fiduciary. When managing risk in a portfolio, as a fiduciary of other people’s money and also of your own and your family’s, you always have to remember that there is the possibility of a catastrophic outcome. Jack Bogle, a veteran of many battles, said in a speech in 2009: “We must base our asset allocation not on the probabilities of choosing the right allocation but on the consequences of choosing the wrong allocation.” He is completely and absolutely right!

On many grim afternoons in the long hot summer of 2011, as stocks plummeted as if presaging the end of the world, that thought tortured me. The history of the world is one of progress, and as a congenital optimist, I believe in equities. Fundamentally, in the long run you want to be an owner, not a lender. However, you always have to bear in mind that this time truly may be different, as Reinhart and Rogoff so eloquently preach. Remember the 1930s, Japan in the late 1990s, and then, of course, as Rogoff said once with a sly smile, there is that period of human history known as “the Dark Ages and it lasted 300 years.”

As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways. In 2008, I was not respectful ...

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