The Rear-View Mirror Is Not a Strategy

On September 15, 2008, Lehman Brothers filed for bankruptcy.

I remember that morning clearly.

The headlines were unlike anything I had seen in my career. Lehman gone. Merrill Lynch sold overnight to Bank of America. The two places where I had spent my Wall Street years, disappeared as independent firms within days of each other.

I had already been successfully running Ridgewood for around 5 years so I had clients to reassure. I had responsibility for their capital. And I had a choice to make about what to do next.

What I did not do was start trading or panicking in reaction to what had just happened.

I wrote to clients and explained what had occurred. I told them our country and markets had always recovered from crises, and that it was prudent to act on the assumption that this time would be no different.

I told them that our principles had not changed, and that good long-term investments were still good long-term investments.

I did not know what the market would do next. I said so explicitly.

Investors who lived through the dot-com unwind from 2000 to 2002 may still carry some scar tissue from that era.

This is common in the aftermath of a significant market crash.

Investors learn from the pain and the experience changes their thinking and behavior accordingly.

However, the next significant event is probably going to come from a direction they did not anticipate.

The rear-view mirror is not the windshield. And driving while looking backward remains a costly strategy regardless of how comfortable it may feel.

What I wrote to clients in 2008 was not a prediction but a reminder of the framework that we follow because it increases our odds of success.

The principles did not change when Lehman fell. They did not change during the dot-com unwind.

The framework is built around the ownership of great businesses, the margin of safety, the long time horizon, and the temperament to remain rational when others are panicking.

Crises are inevitable, but for investors grounded in enduring principles, those moments should be an opportunity to stay the course and ultimately prosper.

The investors who will navigate the next crisis well are not the ones who have most carefully studied the last one.

They are the ones who built a framework that does not depend on knowing which crisis comes next or timing it.

They profit when others panic by sticking to a sensible strategy and possibly even taking advantage of the irrational actions of others by scooping up bargains when they can.

This is not always easy to do by yourself; one of the many reasons why studies show that clients working with advisors often do significantly better than those on their own.