Notes on the Greek Debt Crisis

With all the activity and reporting relating to Greece, it’s easy to forget some important basics about investing.

As a quick post, I thought I would make a few points worth remembering.

• The outcome of the Greek debt “crisis” is uncertain.   Markets usually adjust to uncertainty by going down.  That compensates those willing to take the risk of buying in the midst of uncertainty, because it causes them to benefit more when stocks go back up.
• We should ignore anyone telling us to change how we invest in light of any news events.  (That is, assuming that the investor is broadly diversified and managed based on their time horizon.)  A recent article pointed out in the Wall Street Journal that hedge fund managers (who typically manage very large portfolios for accredited investors)  were handily beaten by monkeys throwing darts AGAIN.
• Return is the payment for risk-taken.   Risk-free treasury bills have lost money to inflation in nearly 40% of all ten year periods dating back to the mid-1920s.  Large US stocks have lost money in approximately one quarter as many ten year periods.  (It is worth noting that diversification would have reduce that number even more, since many of those losing time periods coincided with international stocks doing very well.) When people try to avoid risk, ironically, they usually end up taking on more risk.
•  The media will work investors up into a frenzy, because it attracts viewership. However, they have a dismal history of predicting the future.
• This too  shall pass.  I have seen countless “crisis situations” pass over the years and most of them I’ve already forgotten.   It is my experience that it is best to ignore them and focus on other things that are far more important in life.