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

Chapter 3. What Have We Learned?

Now that we have relived some of the emotions of the last economic and market debacle, let's move on to what we have learned from that experience. I am proud to say that I was well in front of the curve in identifying several of the dangers lurking for investors before late 2007. Today as back then, the idea is not to predict the future, but to separate investment mythology and conventional wisdom with investment reality. I wrote quite a bit about this in my first book, Wall Street's Bull and How to Bear It (Isle Press, 2006). Here is an updated, post-2008 analysis of how to stay clear of trouble.

Each part of this chapter covers a different theme. What the parts have in common is that they are all lessons learned during 2008. Each covers a different segment of the investment and asset allocation approach I have espoused since the 1990s. Here is a quick summary of what we'll cover in this chapter:

• Understand that stock market history is completely different from what many investors think it is.

• "Rent" the stock market instead of owning it.

• Seek to use the stock market for what you want, instead of simply tracking its return up and down. Instead, aim to capture a majority of the market's upswings and a lesser portion of its down moves.

• Diversify in ways beyond what many "experts" consider to be diversified.

• Forget "style boxes." Stocks of different sizes and styles are often highly correlated to each other. This is especially true when stocks are falling. ...