A moment of reflection on 'history'

I saw this article Five Lessons from History from one of Uncle8888's post link. I find this article very insightful and here are a few paragraphs that are particularly resounding -


"Downturns don’t happen in isolation. The reason stocks might fall 30% is because big groups of people, companies, and politicians screwed something up, and their screw ups might sap my confidence in our ability to recover. So my investment priorities might shift from growth to preservation. It’s difficult to contextualize this mental shift when the economy is booming. That’s why more people say they’ll be greedy when others are fearful than actually do it.

The same idea holds true for companies, careers, and relationships. Hard times make people do and think things they’d never imagine when things are calm."

How many of us have ever experienced a market crash bad enough to make us capitulate or want to capitulate? I think if you have experienced that, you might find the above as resonating as it did with me.


You might have read some of my old old posts lamenting about my investing mistakes and portfolio downfall. This was actually what happened to my equity portfolio (which I have painstakingly built over my few working years) that time. 

This is a screenshot that I took at that time so that it would come back to me every now and then to haunt me serve as a reminder what my portfolio could become if I don't take care. It's pretty obvious where my mistake lies.


It was really scary watching my red portfolio bled by the day. 

Total massacre. 

At that point, I have totally lost confidence and failed to be 'greedy when others are fearful'. What would you do if you were in my shoes then?

So did I capitulate?

No.

If I did, I would have "washed my hands in golden bowl" from investing and ceased writing. So what happened to my portfolio after that?

I did a total revamp of my portfolio. Perhaps my investment philosophy and outlook have changed. Also at that time my holdings weren't too heavy. 

After so many years, it became a break-even on my realized losses and realized gains (without counting the dividends collected). I know of friends who are still sitting on huge unrealized losses.


The other resounding paragraph I found is this -

"Growth is driven by compounding, which always takes time. Destruction is driven by single points of failure, which can happen in seconds, and loss of confidence, which can happen in an instant.

The irony is that growth – if you can stick around – is a more powerful force, because it compounds. But setbacks capture greater attention because they happen suddenly."


I think there are ample examples around to show how powerful the effect of compounding is even without my further illustration.

In order to see the power of compounding, whatever that's compounding needs to undergo a SLOW and LONG process that we usually won't even notice. There are tons of things in our life that we can compound to GROW and we need to be discerning not to choose the bad ones.

In terms of investing, we can see that despite all the setbacks, market rewards those who are the most patient and who managed to stay alive the longest, without losing confidence in whatever that they are endeavoring. (Related post: Still in the secular bull market).

How to 'stay alive' and not lose confidence when there is a market decline of 30% or more?


Make sure we don't lose too much.
留得青山在，不怕没柴烧.

Then slowly win back.

Then learn to keep the wins.


"Long-term success in any endeavor requires two tasks: Getting something, and keeping it. Getting rich and staying rich. Getting market share and keeping market share."

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