Q. Knowing what you do now, what would you have done differently?
A. I prefer to use individual stocks instead of mutual funds today. Liquidity is simply the lesson of 2008. And don't forget leverage. In September 2008, everyone was trying to get out of the market at the same time, and that meant investors lost money trying to get liquidity. But liquidity builds up the problem, and then leverage is what pops the bubble. I find you get better liquidity and much better transparency from individual stocks than funds.
I would also be quicker to the punch when I believed the worst was over. I wouldn't try to be so fine in picking the bottom of the market. In future crises, I hope to capture more of the first leg of the recovery. The market hit lows in early March 2009, and two months later, it was up more than 35%. I'd like to get some more of that next time around.
Now we write trade notes to our clients, which are high-net-worth investors and other financial advisers, on everything we buy and sell, and when we make a model change. That format, that way of written communication, is familiar to them. We state what the company is, and specifically why we're buying and selling right now.
If there's a problem, clients want to know what you are doing about it. This is a part of having formal and formatted communication of several varieties. It shows that regardless of what happens, we can explain our actions and positions in the same way as we did before there was ever a sign of trouble.
Chief investment strategist
Sungarden Investment Research LLC
— as told to Bruce Kelly