Market volatilty is a true test of the merit of an investment approach. Recent market performance while not probable, may help us to build better future portfolios.

1. Leverage turns a big problem into a life altering event.

2. Diversification works and importantly having a series of maturities to cover cash-income requirements really helps. If you have had a well diversified portfolio and do not have to sell your equities to meet income requirements your chances for success are greatly increased.

3. Individual stocks capture significantly more risk than the market as a whole.

4. Active managers of mutual funds and pension plans as a group have an expected return that is less than the return to the markets in which they invest.

5. The sense that active management outperforms in declining markets has been challenged.

6. Stocks outperform bonds - just not every month.

7. After a market crash, a big diffentiator for future success is those companies that need external capital vs. those that can look internally for financing needs. High dividends increase the likelihood of requiring external capital.

8. When risk manifests itself and markets drop rebalancing programs lose you more money than a buy and hold strategy.

9. Diversification includes and requires that we diversify by currency as well. Hedging out the currency reduces return and cost additional fees.

10. Volatility ia a measure of long term experience so that average volatility can be somewhat meaningless as an assessment of risk. In general “average assessments of risk” don’t work when you need them.

11. Liquidity providers win in the end.

12. Stock prices have no memory. If a stock is down 20 or 50% the risk of ownership is increased even if expected return is greater.

13. Fear sells media products at a much greater rate than greed.