Your life experience shapes the investor you become. 

Those who grew up in the Great Depression prioritized saving and safety. 

If you came of age in the 1970’s, the spectre of inflation might continue to follow you, despite several decades of price stability. 

If you cut your teeth in the 1990’s technology boom, you were trained to look for growth and a job that issued stock options. 

Many learned from experience that housing was a “can’t lose” investment, until the 2008-09 collapse taught them otherwise. They will be unlikely to overextend for their next property. 

Were you conditioned in a bull market? You’ve been trained to act fast, to buy every time prices drop. 

Were you conditioned in a bear market? You’re afraid every decline will be long-term. You’ll be overly cautious and sell every time prices start to reflect optimism. 

I remember watching a presentation in the early days of index ETFs, with a portfolio manager explaining how he became a convert to passive investing. “Bombardier was a great company. I owned a lot of Bombardier stock. And yet, somehow, the stock went down. Investing in individual stocks is hard, and so I prefer indexing.”

This is a simplified version of his story, but not far from the message he was trying to deliver. I remember sitting in the crowd incredulously, thinking “you were invested in a highly indebted company whose global competition is heavily subsidized in a business that is very capital intensive and economically sensitive, that’s why the stock went down,” but it’s too late, his mind was made up. Buying individual stocks was hard - he would be a die-hard indexer for life. 

I’m not different. My attitude towards risk was shaped in the internet and communications bubble of the 1990’s, along with the inevitable bust. Because of that experience, I feel that those of us who come of age investing through crashes are fortunate, because we have an awareness of how savage the market can be, and how indiscriminately a crash can demolish the portfolio you had so much confidence in, sometimes just days, or even hours before.

What’s happening right now in the high-growth tech sector and “Web 3” crypto markets is going to shape a lot of future investors, just as the 1990’s tech crash did. Fortunes have been made and fortunes will be lost. Sadly, the lesson that many will take from this is that the game is rigged against them, and they will hide in the safety of bank deposits and government savings bonds. The reality is that they have been taking risks where the odds are stacked heavily against them - similar to making an even odds bet on a particular number coming up on the roulette wheel. What’s happening now is that the wheel is coming to rest and the chips are being swept off the table, and the reality of so many of these bad bets is being exposed. 

The correct reaction to this isn’t to hide in the perceived “safety” of bank savings accounts and “guaranteed” investment products. One doesn’t need an economics degree to see the impact that inflation is having on our purchasing power. Rather, those who have been burned by the false promises of the speculative cycle should tilt to an investment style that prioritizes real long-term safety - owning pieces of productive assets and well-managed businesses. Low Risk Rules outlines the research that supports the long-term outperformance of a lower risk investment strategy.

The current market crash is going to shape the investor you become in the future, but how you respond is up to you.