There are particular periods in the market where investing appears to be too easy. Things can get crazy when that belief spreads. 2021 was one of those years.

The danger of easy money is that investors become complacent. They become blind to the risks they take. They don’t realize that money made easily, can be just as easily lost.

Of course, anytime too many people believe returns are easy to come by, it’s a good time to return to the basics. Brushing up on sound investing principles, past cycles, and how similar periods ended is always a good idea when investors become risk-seeking en masse.

Warren Buffett once said, “People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them.” He used it to explain why so many investors were hurt in past market bubbles.

Too often investors rely on recent experience to reinforce decisions. The error lies in setting expectations as if future conditions will exactly mirror the past. Except, markets don’t work that way. Change is constant. Looking backward ignores the craziness ahead. Continue Reading…

As 2021 comes to an end it’s time for some highlights on the year.

It’s been a good year for the U.S. markets. The Dow, Nasdaq, and S&P 500 are up year to date.

The S&P 500 is up 26% YTD with dividends. (I’ll have more on the year’s global returns in January.) If the S&P 500 ends the year roughly the same, that would be a 16% annual total return since 2009! 2018 is the only losing year during that period.

Treasury yields crept higher early in the year. Continue Reading…

As 2021 draws to a close, let’s review some of the lessons from the most popular posts this year.

After twelve years of doing this exercise at the end of each year, one thing stands out. I still have no idea what posts will rise to the top and which will flop. The list is entirely a product of your support. So thanks for reading and sharing!

The collection of posts below covers a range of topics. Most of them are based on something I’ve read this year. Two exceptions, however, are a response to the market craziness this year.

Right at the top, the market experienced a short squeeze that got everyone’s attention. Of course, it wasn’t the first time it happened (nor the last). So it became an opportunity for a history lesson. The other offers one perspective on how much optimism is priced into the market. The point is market history is filled with things that rhyme with the present. It offers investors a broader perspective on how things might turn out and relieve any angst and worry too.

As for the rest, it’s an assortment of people and topics. Buffett and Munger make an appearance. Peter Lynch and Bernard Baruch do too. Lou Simpson and Robert Kirby, two under-the-radar names, also show up. Investor behavior and common mistakes were also frequent and relevant themes this year.

There should be something for everybody. Let’s dive right in. Continue Reading…

Thomas Gibson had a front-row seat to the speculative madness in Wall Street at the start of the 1900s. He saw traders succeed and (mostly) fail on a regular basis for a decade. In those few successes and many failures, some common themes stood out.

For instance, ignorance, overtrading, and negligence were the main reasons people lost money.

The business method, as he called it, was absent. More often than not, speculators treated the market as a casino rather a place to buy and sell shares of businesses for cash. They knew little about the companies behind the shares they bought — relying on tips over research.

Worst of all, they seemed to do everything backward. The height of speculation was always at market peaks when prices and enthusiasm were highest. But when opportunities were prevalent at lower prices, that interest and enthusiasm had dried up. It seemed as though they wanted quick riches, with little to no effort, or not at all. Slowly wouldn’t do.

Gibson wrapped up those experiences in his first book published in 1906. The Pitfalls of Speculation is a perfect example of how long sound investing principles have been around and how rarely investors heed them. You’ll find some highlights from the book below: Continue Reading…