The Flexible Investing Playbook: Asset Allocation Strategies for Long-Term Success

Chapter 2. 2008: What the Hell Happened?!

The most important lesson from the events of late 2007, all of 2008, and early 2009 was this: do not assume that just because something has never happened, it can't happen. September 11, 2001, was the ultimate example of this in the "real world," and the financial equivalent occurred later in the same decade. Lehman Brothers and Bear Stearns, gone? Citigroup and AIG sister organizations to the Department of Agriculture (i.e., all owned by the U.S. government)? Home prices plunging in value? Fannie and Freddie (ironically, the names of my wife's late grandparents who escaped Nazi Germany to start a life in the United States—but I refer to the mortgage issuers) under siege? Investment banks converting into federally chartered banks to escape collapse? The Tampa Bay Rays winning the American League pennant?

It was a year of "black swans" for sure. But the phrase "never say never" should be a part of every investor's, advisor's, and portfolio manager's DNA. As an investment strategist, I get paid to consider what our clients may not ever dream of, and to question everything, especially when an idea becomes popular or "obvious" to the mainstream.

During the 1980s and 1990s, people were lulled into a false sense of security. That led to a sense of entitlement, since in relationship to prior generations, they were denied very little. Remember "Tickle Me Elmo"? Every kid had to have one, and parents stampeded each other during the holiday season to ...