Spence Green

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I work at Lilt. In addition to computers and languages, my interests include travel, running, and scuba diving. more...

What I Learned from the Crash

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Today the Dow Jones Industrial Average closed at 8,519. Had you invested $100 in the market 10 years ago, you would now have $101.22, exclusive of dividends. Of course it would be presumptuous–and a bit naive–to say that investing in equities as a method of wealth accumulation is a poor choice. Look at Warren Buffett, you might say, and his ‘snowball’. This line of reasoning has merit: indeed, Buffett started with hundreds of dollars, not the millions that Rockefeller Jr. used to magnify his family’s wealth. But at that point, a distinction should be made. First, it is not possible to make a fortune in equities through investment unless you are entirely devoted to the task (speculators are not included in this statement; they gamble, and their success follows the associated probability curve). Market inefficiencies exist, but those of us who do not devote our days to studying it are highly unlikely to perceive and to exploit those opportunities.

One of my vanities has been to consider myself a prudent investor. I re-balance quarterly, keep a budget, and consider taxes when allocating capital. I read the Wall Street Journal. But, alas, I am no more competent than the man who looks at his stock every year or three. Over the last decade, both of us have achieved roughly the result: a single-digit appreciation in value. John Bogle made this observation years ago, but he had one advantage that my generation has lacked: experience with a recession. When the market makes a significant downward move, the correlations break and everyone, no matter how intelligent or how devoted, loses. Although I will continue to buy equities, I have decided to limit myself to index funds. My returns will be average, nothing more, but I will have more of something more valuable.


Alan Kay once said that the best way to predict the future is to invent it. Here is the lesson: ignore Wall Street. Instead of trying to predict stock prices, try to build a business. Identify a big problem. Put together a team. Try, fail, and try again. The time that you invest in such an enterprise is equally the most valuable thing that you have, and the cheapest. And now is the time.

If that business succeeds, the returns will make your Fidelity account look like a tip jar.

Written by Spence

October 22nd, 2008 at 7:22 pm

Posted in Ideas

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