In September was the 10th year since the financial markets went down drastically and for a while it seemed all financial institutions around the word were at risk of collapsing. Thanks to governments around the world, all financial institutions were given money or received money directly and indirectly from the government. As an investor, what lessons were learned? In every financial model there is the desire to hold some cash or readily cashable assets – but if the stock market goes down 50% when was the good time to buy because looking back since the downfall large stocks have delivered a 250% return. In a recent article in the Globe, Ian McGugan asks what lessons can be learnt?

One first lesson to learn is doing nothing, can be good. The problem with rushing to safety is it is not always clear where safety lies.

If you had bought the S&P 500 when Lehman Brothers declared bankruptcy, for 6 months the market went down, before seeing signs of a rebound.

The second lesson is looking backward at valuations are an uncertain guide when everyone is panicking. When markets fall, the stocks look undervalued, but stocks continued to fall

A key factor in turning market sentiment was evidence that US policy makers were willing to take decisive action. The US Federal Reserve dropped its key lending rate to zero, stepped up to play lender of last resort to keep credit in the system. In addition, the newly elected government introduced a large stimulus package.  ( A book was read about how President Obama was being taught about the economic crisis a year in advance, so when he became President what actions he had to do. In thinking about the current President not positive if he would even know which questions to ask. Perhaps under the existing President different asset classes would have done better).

An investor who hopes to siwell during a crisis has to pick not just the right assets but also the right policy makers. The supremacy of the US stock market over the past decade owes a lot to the willingness of the Fed and Congress to experiment with at least a moderate amount of stimulus.

The situation in Euro is different, it is important to remember in a financial crisis – they tend to be relatively short life. Today’s winners are often tomorrow’s losers and vice versa. This means when the next crisis happens, chances are a different asset class will be the winner over the next  10 years.

Linking to dividend paying stocks, whether they lead the asset classes what is true when stocks began to make a comeback they were lead by profitable stocks which can and continued to pay dividends. It was possible to buy good companies and receive growth from them with low risk. In any crisis good defense will help you as you sort out when and how to go on the offensive or look at even better opportunities.

There are more questions than answers, till the next time – to raising questions.