No Regrets for '08, and No Fear for '09


This past year was a tough one financially for almost everyone. The markets once again demonstrated that -- much like Mother Nature -- we cannot stand in their way. Once rolling, the markets cannot be deterred by government fiat or individual pleas, any more than we can muster the force to change the direction of a hurricane or tornado.

We can only find the safest shelter possible, hope the storm doesn't do too much damage, give thanks for emerging in good health and try to help others who were not so fortunate.

It's not easy to swallow our pride and what's left of our fortunes and admit to a greater force -- the market!

Some have lost much more than pride, including their homes, their jobs and their retirement accounts. Even worse, some have lost their health, and thus their ability to regroup and recoup. Or they've lost the one commodity more valuable than money -- precious time.

But you're still here -- and that's far better than the alternative. So don't look back. There is only one direction possible now: Forward. Let's leave 2008 behind with appreciation for the lessons it taught and resolution that we won't make the same mistakes in the future.

The U.S. Has Survived Worse

The past decades of relative prosperity have conditioned us to believe that all declines will be short-lived and that we can ride them out -- whether in our investments or in our careers.

But history also shows us that the prosperity of America has been significantly interrupted at various times in our history. Most notable was the Great Depression of the 1930s, with its legendary stock market crash, unemployment, bread lines and poverty.

Less well remembered in U.S. history is the Panic of 1873, which started a decade-long depression that was no less severe. It, too, was triggered by a global financial crash, this one starting with the Austrian stock exchange, along with many German and French banks. Ironically, that crash was precipitated by a collapse in a widespread European mortgage financing boom of that era!

That panic spread to the U.S., and when railroad financier Jay Cooke couldn't make good on his bonds, the U.S. stock market crashed, hundreds of banks closed over the next few years and unemployment rose to 25%.

Lessons Learned

There is much to be learned from history, but perhaps the first lesson is that human nature does not change. Fear and greed push markets -- and people -- to extremes.

An equally valuable lesson from these depressions, or financial panics, of the past two centuries, is that they could not deter America from rebounding and growing into another round of even greater prosperity.

In the depths of each one of these American financial collapses were the seeds of the next round of opportunity -- for those that had saved a bit of cash and maintained an optimistic belief in the future.

I remember interviewing A.N. Pritzker, founder of the vast Pritzker real estate fortune, in 1981 -- at the depths of that severe recession. I asked how he got his start in real estate, and he mentioned that he bought his first properties in 1933. In response to my astonishment that a fortune could be started in the midst of the Depression, I've never forgotten his words: "That's when the opportunities arise."

Similarly, a look back at history shows that during the panic of 1873, Andrew Carnegie, Cyrus McCormick and John D. Rockefeller had enough liquid reserves to buy up other failing companies and start building their own industrial empires.

Some may criticize this kind of investing as opportunistic, but those risk-takers paved the way for the next era of economic growth, which helped raise the standard of living for all Americans.

That historic perspective does not take away the immediate pain felt by workers in the affected industries -- whether the railroads in the 1870s, or the industrial workers and farmers who suffered most during the Depression of the 1930s, or the auto workers, retail employees and financial services workers who are losing, and will lose, their jobs in the Credit Crisis of 2008 (and 2009).

I have no crystal ball. My best educated guess for 2009 -- based on history -- is that the worst is not over yet. It's an old law of physics that when you get extremes in one direction, you can expect an opposite and equal reaction. And we certainly went to extremes in debt, leverage and speculation.

But my firm belief -- also based on history -- is that America, and Americans, will make it through this current pain, and will survive and prosper. That's the real lesson of history. And that's The Savage Truth.

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