2007-2008 Financial Crisis?
What was your “oh shit” moment? The moment when you realized that something was amiss, whether that was before, during, or shortly after the crisis? How did the crisis end up affecting you personally and when, if at all? This question is targeted at older users of Blind but of course if you’re young and have an experience to share, please do.
I didn't believe it and bought some 6 month in the money call options after the first big drop that I was sure would make big money on the rebound. They went to zero and expired worthless as the market continued lower and stayed low. That was the last time I invested in derivatives. Since then stuck to boring index funds (which I mostly had then too). I had a job through the whole thing so other than market losses I wasn't really impacted. I knew a LOT of people who didn't have jobs, including lots of tech people. I knew a couple of people who lost their homes. I dealt with it by not checking my investments for about two years. Literally chucked unopened mail from the brokerage in the garbage and refused to log in (monthly paper statements were still a thing). Put investing as far from my mind as possible to avoid the temptation to sell. So didn't buy at the low, but importantly didn't sell in a panic either. Just let it ride. It's amazingly more difficult than you imagine to hold tight when you're actually losing half your life's savings, everyone is in a panic, your friends are losing their jobs, and the news is saying it might be the start of a new great depression. It's even harder to buy more. I was able to hold, but put no new money in other than automatic payroll saving.
And then.... ?
Eventually my investments bounced back and I started actively investing again, didn't lose anything, didn't gain anything, just recovered. Just trying to relate how gut wrenching it was not to panic and sell and how difficult it is to gamble on the market by buying more in that situation. I coped by refusing to look at my investments so I be could be willfully blind about how much I was losing on paper. People think it's abstract, that it's reacting logically to numbers on a computer screen, and not being influenced by the news. It's not abstract, and it is not just headlines, it's a real chunk of money you used to own that's gone, and real people you care about being unemployed and struggling to keep their homes. There's probably talk of layoffs in your workplace and you're probably afraid of losing your job. The emotional urge to sell in that environment is overwhelming.
When a mortgage broker who went to my gym was giving interest-only loans to bartenders for condos. This was 2007. I moved all my investments to cash. True story. Saved our bacon.
Interest only? As in crazy APRs?
5 year adjustable interest only as the minimum monthly payments, but you could pay a different amount that included principle.
When Lehmann Brothers collapsed. I was just starting out then so didn't have a lot of money, so there was nothing to lose. Also kept my job throughout the recession so am grateful for that.
In one of Wm. Bernstein's books there is a discussion of why very few people were able to buy in at the bottom of the 1929 crash and the subsequent depression. Lots of people tried to. Then the market just kept going lower, and more people tried, and still the market kept going lower. The people who were willing to take risks were all busted out by the time the market really hit bottom. There were still lots of conservative investors holding bonds at the bottom who COULD have taken advantage--but they weren't going to, the ones who survived with money to that point had money precisely because they would not take risks. By the bottom of the crash the only people with money left were people so risk averse that they were NEVER going to buy in, everybody else had already taken a chance and gone broke.
But but I was told by Blind to buy more when it crashes...
This is an oversimplification. The stock market went down 90% in the depression. All people have to do is wait for the downtrend to stop and go sideways (or up) for maybe 5-8 months before they can count on reversal. Same thing happened after tech bubble.
Lehman collapse. I was too naive. I joined Microsoft during the crisis with a huge pay bump and I kept my SIPs going in good mutual funds. Around the bottom, I started investing tiny amount in stocks. I still hold some of the good ones with most 4 to 20x up but since it was tiny amount to start with, it's not much. I actively avoided news about downturn and recession in 2007. So I became hypersensitive now to any such news. I decided that next time I wouldn't be caught off guard and when great companies are selling cheap, I wouldn't hesitate buying as much as I can.
Mine was two months after. I was working at Goldman at that time and was not happy. I was looking for a job and got offers from Morgan Stanley, Microsoft, Amazon and guess who? Lehman Brothers. This was Oct’07. I decided to join Amazon and started in Dec’07 in Seattle. A week or two after I started Lehman Brothers ceased to exist! The entire org I was offered to join at Morgan Stanley was fired a week after that. And I knew I dodged a bullet without knowing what the hell I was doing!!!
I interviewed with Lehman brothers in late 2007, and the interviewer was very rude and arrogant. My parting words to him were "I hope your company ceases to exist".
🙄
Oct 3rd 2008, seeing $700b of taxpayer money earmarked by the Senate to save the 0.1%. It was an eye-opening experience I will never forget.
People often get this wrong and it’s totally tied to their political leanings. The 0.1% didn’t need saved. The rest of us did. The 9.5% unemployment rate peak had almost no 0.1% in it.
Saving jobs, that is funny. This was a preservation of capital backed by taxpayers. I would recommend Capital in the 21st Century by Piketty if you want to brush up on macro wealth generation and allocation mechanisms (and a lot of other interesting content as well). Judging by your comments above you’re not much of a reader, but have no fear it comes as an audiobook as well!
I was young and had worked in the industry for a few years, so didn’t have a lot of savings. I read an article in EETimes about the mortgage financing mess and how so many bad loans are being made. In response, I went all cash and had almost 0 losses in the crisis. My company laid off a few percent of workforce but I luckily survived. We had a paycut and lost many benefits. My wife had stock investments in another country and those halved by the time we were able to figure out how to trade remotely. The whole experience chastened me. I still read a lot of economic news and listen to Marketplace on NPR daily ever since. I understand macroeconomics much better now through these studies but have been relatively risk averse in many ways.
I saw it coming in that I knew what was happening in the real estate market was unsustainable but I didn't grasp the depth of what was to come. After Country Wide went under I started to slowly wake up to the fact that this could actually be big, but it wasn't until Bear Stearns and Lehman Bros collapsed that I started to fear for my job. Sure enough, the startup I was working for ran into trouble and I got caught in a mass layoff. Didn't take more than a month or so to find another job, but it wasn't a particularly good job. I invested as much as I could during the crash because I knew the market would rebound quickly, but the layoff was an impediment. I wish I had enough cash in reserve back then to buy a few rental properties, because I would be long since retired by now. Prices (and rents) have tripled since the bottom. It honestly wasn't that scary for me, even with the layoff. It was more surreal than anything.
When you could buy stock at book value. Then the race was on to buy as much equity and real estate as possible. Obviously works out well for those that plan for corrections and is a super terrible awakening for the rest. The next one will be wild given the historically long run.
Were you able to take advantage of the asset sale? If so, had you anticipated such an event and just had cash available for it (I’m assuming not)- or were you just lucky and happened to have cash? Would you be in a position to take advantage of a sale if it happened again?
You can never time the market so yes I keep large amounts of cash. I've also been lucky enough the last 2 recessions to retain my job, business, and rental income so tend to save/invest more aggressively during firesales.