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Finance Pros Find Lessons for Today in Their Biggest Blunders

Financial advisers share the biggest mistakes and best money moves they made in past downturns.

(Bloomberg) -- The 1970s oil crisis. The dot-com bubble bursting. The financial panic that led to the Great Recession.

Each major crisis in recent history had unique characteristics that made it particularly painful for those who lived through it. But each also offered lessons and opportunities. 

That is the dynamic financial analysts and advisers are trying to navigate as fears of another US recession mount everywhere from the stock market to the housing sector. The economy isn’t officially there yet — and there is still a compelling case that the country could avoid one altogether. 

But talk of a recession can become a self-fulfilling prophecy, and another jumbo rate hike from the Federal Reserve on Wednesday could exacerbate those fears. To prepare, investors should start thinking about ways to limit their financial pain and possibly even take advantage of emerging opportunities. 

With that in mind, Bloomberg News asked advisers across the country for the biggest mistakes and best moves they made in recessions past, and how those lessons might be applicable today. Their comments have been edited for length and clarity:

Limits to Dip Buying

Mike Silane, managing partner, 21 West Wealth Management

Biggest mistake from the dot-com recession: My biggest mistake early on was continuing to add to equities as the markets declined, and maybe not having the perspective of saying, ‘You don’t want to catch a falling knife.’ It may have been academically correct and in the long term it was the correct move, but in the short term it created more pain for clients beyond what I had experienced before. 

Best move from the dot-com recession: I don’t feel like I got caught up in the huge tech bubble. You had to have exposure, you knew that the internet was life-changing, but we avoided a lot of the companies that had no earnings. The good still go down with the bad, and that’s similar to this environment. 

Takeaway for today: Like the dot-com era and like today, there are other areas where you can make money more conservatively and you don’t need to speculate. You don’t want to make a big style shift but you can look to value. I’ve also been emphasizing dividends more in this environment.

Stocks You Trust

Chris Grisanti, chief equity strategist, MAI Capital Management

Biggest mistake from the Great Recession: In the middle innings of the crisis, financials looked really really cheap so we would gravitate there because we trusted management — in the GFC, knowing a lot actually hurt you because it was all so unprecedented. You had kind of a false sense of security.

Best move from the Great Recession: One of the things I learned is when stuff is going on that is unprecedented, it’s a smart thing not to take risks. Don’t try to be a hero, get down in the foxhole, go to risk off, raise some cash. There were times when I said I don't know what's going on but it's more prudent to sit on the sidelines until I figure it out. 

Takeaway for today: My biggest piece of advice for today is find stocks you can marry and not just date. If you are going to own a stock, make sure you are comfortable owning it through rougher times ahead. Don’t try to get it because in three months you think the market will be strong. The Fed is definitely going to raise rates again and again and again, and I think that’s going to push us into a decent recession. I’m not saying don’t buy stocks, but make sure you’re comfortable owning them through that kind of recession. 

Dry Powder

Jamie Lima, founder and president, Woodson Wealth Management

Biggest mistake from the Great Recession: Early on I would sometimes let clients lead the way too much, and a lot of that was based on emotion. That was two years into my career and I literally had grown men crying on my shoulder because they were going to have to tell their wives to go back to work, or not to do things they were going to do.

Best move from the Great Recession: When you have some dry powder, that’s when you can take advantage of opportunities in a recession. The people that had purchasing power were able to go out and buy three, four, even five houses at rock-bottom prices and now they're flush with cash. That’s because these houses are worth beaucoup bucks and they have income coming in. They were able to pounce on an opportunity when people were really fearful. That could be like what’s happening now, if investors stay the course and buy as much as possible on a discount.

Takeaway for today: I would never tell anyone to take all their funds and go into Bitcoin, but within our portfolios, we have a 2-3% allocation to cryptocurrency. You can actually buy ETFs that can get you exposure to Bitcoin futures, or companies that transact in Bitcoin. Given the current dip — and the fact that Bitcoin is likely not going anywhere, even though it’s down — it may be able to drive some excess returns in the future.

Don’t Rush

Deborah Ellis, certified financial planner, Cogent Independent Advisors

Biggest mistake from the dot-com recession: When I saw the market go down, I totally freaked out that we were all in stocks and didn’t have any mutual funds or ETFs. At the time, the big push was you have to be diversified, and the only way to be diversified was to have index funds. I went way into funds and didn’t understand the funds or why I was in them.

Best move from the dot-com recession: We didn’t know enough about the tech companies to buy them. So yes, our assets went down, but not substantially.  The major companies that we held weren’t as volatile — they had funding, they had a good base, they went down but didn't go out of business like so many of the dot-com companies.

Takeaway for today: A recession does not necessarily mean the market is going to crash and that good companies are not going to come back. If you know what you’re buying and why you’re buying it, you’ll have a good sense of what companies to invest in if there’s a discount. Also, if you have alternatives that don’t track as the market tracks, they will probably go down but they won’t go down as much. 

Handy Cash

Tara Unverzagt, president and senior planner, South Bay Financial Partners

Biggest mistake from the Great Recession: Investing in AIG. I understand insurance fairly well, but didn’t understand what AIG was insuring with collateralized debt obligations, and didn’t do my due diligence. I will live with that mistake forever. 

Best move from the dot-com recession: One of my fondest memories was in 1999, a client was going to retire in 2000. His company was moving his 401(k) from one brokerage to another. He needed to let them know how to invest the assets at the new brokerage. This was November 1999 and he was going to retire a few months later. I said, “Just leave it in cash for now. We’ll liquidate it soon anyways. No point in investing it for such a short time.” The crash happened right as he was retiring, and we hadn’t rolled over the funds yet. He kept all his wealth, was able to retire as planned, and bought into cheap valuations. He has passed away since then, but his wife is surviving well with the nest egg to this day. 

Takeaway for today: Don’t get caught up in the “the world has changed” narrative. Every time a bubble is happening, that’s exactly the narrative that comes up. “It’s different now; the way we value things is different.” But if it’s too good to be true, it probably is. 

Delay Bargain Shopping  

Kim Forrest, chief investment officer, Bokeh Capital Partners 

Biggest mistake from the Great Recession: I should’ve looked at banks. There were going to be banks that succeeded and there are banks that succeeded. I didn’t even look at that sector and I should have. Look at every sector. 

Best move from the Great Recession: I think that not trying to get cheap stocks that were ultimately not cheap was something I did well. I've always wanted growth at a reasonable price. I think that served me well in that recession. Sometimes value people look at balance sheets and think, “Ooh, that looks great” — I more often than not think, “Ooh, that looks mispriced.”

Takeaway for today: In whatever sector gets affected, don’t go bargain shopping too early. Don’t leave what works for you. If you’re a momentum person, play the momentum game — don’t get sucked into playing a different game. You are what you are, you see the world a certain way and you can still make money in any market. There is growth out there. In very rare cases does everything go wrong — it’s usually somewhere in between. 

To contact the authors of this story:
Charlie Wells in London at [email protected]
Claire Ballentine in New York at [email protected]

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