Free The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy by David Wiedemer, Robert A. Wiedemer, Cindy S. Spitzer Page B

AFTERSHOCK WISDOM INVESTING
    For years, Conventional Wisdom (CW) money gurus have been telling us that buy-and-hold investing is the way to go. All you have to do to grow yourself a nice nest egg is to get some high-quality stocks and bonds in the right mix to match your age and goals, and then like those infomercial ovens on TV, you can “just set it and forget it.”
    The easy CW approach to investing naturally worked very well in an overall rising multibubble economy. As long as you stayed well diversified with a collection of average performing stocks and bonds, you could count on earning a good profit in the stock market and a steadily rising total return in the bond market, especially from the 1980s to 2000. With the Dow rising 1,000 percent in 20 years and falling interest rates pushing bond prices ever higher, investors could practically throw a dart at a stock page and end up with some good gains eventually. That’s because CW investing in a rising bubble economy is nearly effortless.
    Then, beginning in 2000, all that started to change. Bonds still did okay, but that 1,000 percent growth in stocks got replaced by a big fat zero percent growth for the Dow and a 50 percent decline in Nasdaq stocks over the next decade. Nonetheless, the CW gurus seemed unfazed, plowing ahead with their CW investing as if America’s multibubble economy would always continue to rise. They didn’t see the bubbles, only the growth. And if that growth happened to occasionally experience a bit of a “down cycle,” they could always just relax and wait for an inevitable “up cycle,” That’s because the rising bubble economy had convinced them that economic growth was virtually guaranteed if you just had patience and waited for a while. CW has faith and CW doesn’t quit.
    So when the real estate bubble started to pop in 2007 and kicked off a global financial crisis in 2008, along with a stock market drop of nearly 40 percent, many CW investment experts were quite shocked and confused. Without the correct macroeconomic view of what was occurring, they held even more tightly to their faithful buy-and-hold mantra. CW investing had simply not prepared them for moments like this. They used phrases like “Black Swan event” and “highly unpredictable” to describe the 2008 stock market crash and global economic downturn, when in fact it was all very predictable (and by the way, was predicted in our book America’s Bubble Economy in 2006). CW, however, saw the entire global financial crisis as unpredictable and beyond our control—as if an unexpected asteroid suddenly hit us out of the blue in late 2008, not something we systematically created ourselves over the course of decades.
    Then, just when it looked like economic Armageddon, the U.S. Federal Reserve came to our rescue—at least in the short term—with massive money printing beginning in early 2009, as well as massive federal government borrowing. The enormous expansion of the money supply directly boosted the stock market and helped support the overall economy. However, it also left us with the specter of future rising inflation and rising interest rates dangling over CW investing like an unseen guillotine hanging by a thread.
    So now the question is what’s next ? Should we stick with the CW folks, like Warren Buffett and other previously highly successful investors, or does this new and evolving economy call for a new and evolving approach? Hmmm, can you tell which way we are going with this?
    Before we get to the details of our Aftershock wisdom on how to invest in the new and changing economy, let’s take a close look at CW investing and why it’s so very hard for most people to give it up.

The Key to Conventional Wisdom: The Future Will Be Just Like the Past
    The key assumption behind all CW investing is pretty simple: What worked well in the recent past will work well today. It’s easy to understand, it’s easy to follow, and, most of all, it’s very comfortable