In 2010, Seth Klarman described 20 lessons from the great financial crisis of 2008, which he notes βwere either never learned or else were immediately forgotten by most market participants.β
Here are the top five takeaways π§΅
Here are the top five takeaways π§΅
1. Whatever outcome you prepare for, know that it can be considerably worse.
"Things that have never happened before are bound to occur with some regularity.
"Things that have never happened before are bound to occur with some regularity.
2. Consideration of risk must never take a backseat to return.
Striving to grab every last ounce of potential profit can leave investors in the lurch when a downturn comes.
Striving to grab every last ounce of potential profit can leave investors in the lurch when a downturn comes.
3. Be wary of "financial innovation".
New financial products are rarely created with dark days in mind. They are seldom stress tested for such events when the times are good.
New financial products are rarely created with dark days in mind. They are seldom stress tested for such events when the times are good.
4. The markets are governed by humans and their behaviours, not physical science.
"Reality is always too complex to be accurately modelled - attention to risk must be a 24/7/365 obsession".
"Reality is always too complex to be accurately modelled - attention to risk must be a 24/7/365 obsession".
5. Be wary of leverage, in all its forms.
Even if you are unleveraged, the leverage that others' employ can impact valuations. When the access to leverage dries up, economic downturns often follow.
Even if you are unleveraged, the leverage that others' employ can impact valuations. When the access to leverage dries up, economic downturns often follow.
6. We recently compiled all of Klarman's lessons as well as his ten "false lessons" into a memo π
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