This 8-part series about investing in stocks ends with a fun pseudo-historic recap. This outstanding video series was produced by SensibleInvesting.tv. I have created a summary and transcript to help you find spots that interest you and make the best use of your time.
Summary of video: Lessons From Stock Market History Pt.8: sensible investing
SensibleInvesting.tv is an independent voice that makes important educational videos about passive investing—the best I’ve seen. This series features some of the biggest names and brightest minds in the investment world. It is presented and produced by Robin Powell and his team at SensibleInvesting.tv, and published on YouTube. It is a great honor to include it in our collection of video tutorials about “Investing in Stocks”.
Key points about investing in stocks from this video:
- Be realistic.
- Stay calm.
- Don’t try to time the market.
- Keep it simple.
- Diversify stock investments.
- Don’t tinker. Do nothing!
Transcript of: Lessons From Stock Market History Pt.8: sensible investing
(At 0:10 Robin Powell starts a fun recap)
Good evening. This is the news from the BBC. Share prices in London and New York have fallen again today with no end in sight; to what the American President Herbert Hoover has called, “The Great Depression.”
The summer of 1932 was one of the warmest on record in the U.S. But Wall Street wasn’t exactly in a holiday mood. The Dow Jones Industrial Average which had soared to a record high of 381.17 in September, 1929, slumped to just 41.22 in July ’32. It had lost almost 90% of its value in less than three years.
With me in the studio is a London stock broker. Cedric Montague Smyth, what advice can you give to those of us with investments? Well we obviously can’t hear from Mr. Montague Smyth just at the moment.
Of course the crash and subsequent Bear Market of 1929-1932 were truly exceptional. It took many years for the markets to recover. For wise investors it proved to be a huge learning experience, and an even bigger opportunity.
I don’t know about our stock broker friend here, but personally viewers, I’m going to follow the advice of those jolly nice chaps from Sensible Investing TV. A learn from these six key lessons from market history. Remember, it’s only 1932 so television graphics are still very basic; but let’s see what we’ve got here. Oh yes, here we go: “Be realistic.”
Time and again throughout history investors have come to expect unrealistic returns from Tulips of all things in the 1630s to railway shares in the 1840s, to tech stocks in the 1990s. If it sounds too good to be true, it probably is.
The next step: “Stay Calm.” In fact, why not do what I do in a crisis. Have a cup of tea.
We British are famed for our stiff upper lips, but market history proves we can panic with the best of them. There was “the” panic of 1825 of course, then further panics in 1837, 1847, 1866; we could go on. Sensible investors don’t panic. Instead they prepare in advance for the worst and stay calm during inevitable periods of market turbulence.
You present, Tom.
Oh, sorry. I was taking that “keep calm” thing just a little bit too serious there. The next step: “Forget Timing.” What’s all that about?
Of course we all know now we should have piled into equities in 1990 and bailed out in ’99, got back in again in 2003, out in ’07 and in again in ’09. In practice working out when a bull or bear market is about to begin is all but impossible. You should invest instead for the long term. Forget timing the market; it’s time “in” the market that counts.
Thank you. The next lesson … Sorry? Oh, “keep it simple.” Sorry. Even a recession you can’t get this stuff.
Investment industry loves complexity. But complex investment products are usually expensive and often produce poor returns. Sometimes as the 2008 crash proved, they’re downright dangerous; not just to personal wealth but the entire economy. Best to keep things simple. The simplest way to invest in equities is via index funds.
Keep watching because we’re almost there. Okay, “diversify,’ because variety is the spice of life.
Yes, the oldest advice is often the best. Throughout market history investors who put all their eggs in one basket have been caught out time and time again. By contrast, those with a balanced portfolio of shares from different regions and economic sectors, as well as less volatile assets, such as bonds or cash, have always been rewarded with positive returns over time.
Finally, my personal favorite. Once you’ve decided on your attitude to risk and built a portfolio to match, do nothing; except to re-balance your investments either once, or a maximum of twice a year. That’s right. While all about you are fretting whether to buy or sell, just sit tight. Markets will always fluctuate in the short term. Best to set a long term course and stick to it. Even if you had been unfortunate enough to invest say, $1000 in equities, at the very height of the market in 1929, it wouldn’t have been a total disaster. All right your investment would have only been worth $170 when values bottomed out in 1932.
Say you’d held on to your investment until 1959 and 30 years is a typical time horizon for an investor saving for a pension, it would have earned you a pretty reasonable annualized return of about 7.8 percent. Your original investment would have then been worth more than nine and half thousand dollars. In fact, whatever the period, markets have always rewarded those who learn from the lessons of history. Those who work out what risk they’re willing to take, build a portfolio accordingly and stay the course. There’s no reason to believe that for our generation it will be any different.
Time for a quick check on the Dow Jones before we go. Last time I looked it was up just a little bit on that low of 41.22 back in 1932; up somewhere around 15,000. Goodbye.
WAIT, before you go ...
Did you get the 10 Simple Rules for Common Sense Investing? Get to financial independence sooner.
Footnotes and Credits: Lessons From Stock Market History Pt.8: sensible investing
This video was produced by SensibleInvesting.tv and published on YouTube Sep 12, 2013 on their YouTube channel SensibleInvesting. Their videos are the best I’ve seen on this topic. They produce them and own the copyright. They have given me permission to embed this via YouTube license onto this educational website.
Sensibleinvesting.tv provides information and opinion on low-cost, evidence-based (passive) investing. They are based in the United Kingdom, but their lessons are universal.
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