On December 11, 2018, David John Marotta appeared on Radio 1070 WINA’s Schilling Show to discuss the market crash of 2008.
Our article “When Will The Markets Stop Dropping?”, published on December 1, 2008, explained the concept well at the time:
To use a different analogy, it is as though your next-door neighbor got into credit card debt and is now trying to pay it off. On his front lawn he is having a yard sale. His couch is going for $10, his good china for $20 and his plasma TV for $25. And you think to yourself, “That’s the exact same couch I just paid $200 for, and my neighbor is selling it for $10!” In fact, you are amazed that the entire contents of your house have dropped in value.
Diversification among household contents did not help because the financial institutions that are deleveraging also owned a nice diversified portfolio. Nothing is fundamentally wrong with couches, china, and plasma TVs. The problem is that when a nation is deleveraging, everyone wants cash to pay off their debts. When you look down the block, it seems like every other house is having a yard sale.
Selling your assets in this market is a foolish move.
Listen to the audio here:
For those interested, here are some other articles you might enjoy on the topic:
Revisiting 2008 When The Markets Were Dropping
Ten years after our original article we review how sage the advice was.
The Markets Can’t Go Up Indefinitely, Can They?
Or do they go up indefinitely, albeit interrupted by some significant corrections?
Beware of Dire Market Crash Predictions
I receive dire predictions with such frequency that were I to act on even a fraction of them I would never be invested in the markets.
Lessons from the Crash of 2007-2008
For a calm investor, a crash will just mean that the stocks you would have bought anyway are temporarily on sale.
How Common Is A Stock Market Crash?
A crash is defined as an index dropping at least 50% from some previous high. Since 1950, there has been exactly 1 stock market crash in the S&P 500 Price Index.
Mailbag: What Happened To The Markets In 2008?
You shouldn’t invest in what you don’t understand.