We spend 12-16 years in school where we learn literature, math, geography, science all based on the primary premise that history is the best teacher. We take a job that demands following procedures from past successes, even those emergency binders in the bottom desk drawer are based on historical policies. Then we have children and try to teach them from our previous mistakes.
So why don’t we use history lessons when we invest?
History has shown us time and time again that:
1. When prices are high verses their earnings, WE ARE IN HIGH RISK
2. When there is high debt levels (leverage), THINGS USUALLY GO WRONG
3. When the majorities are complacent and ignore the signs, LOSSES OCCUR
- It took almost 25 years for the stock market to recover from the 1929 crash.
- It took 11 years for the stock market to recover from the 2000-2002 fall.
- It took 5 years for the stock market to recover from the 2008-09 financial crisis.
What did they all have in common? Exponential growth and high debt levels.
Where are we today? Are prices expensive, debt high, are people complacent?
Maybe...just maybe, we should go back to school and dust off the history books...