One More Day

“One more dawn
One more day
One day more!”
-Les Miserables (music by Claude-Michel Schönberg, lyrics by Herbert Kretzmer and Alain Boublil)

I could not get this song out of my head over the weekend. If you have seen “Les Miserables”, and at this point, I am not sure who has not seen it, you know that throughout the song, the music swells and the action is packed, as the revolution approaches in France and intermission is upon the theater-goers. Well, I am hopeful that there will be no revolution on the horizon, but I am truly looking forward to the end of this year and the beginning of a new one.

2007 has been a wild ride. We should have known from the February swoon that the year would shape up far differently than the preceding one. From the worries about US housing, to the subprime fiasco and the associated financial losses that resulted from the credit crunch and the predictions about recession, I think that investors are flat-out exhausted. In fact, to come through a year like this one and still be able to make money in your retirement and investment accounts feels like a major victory!

As we close the book on 2007, there are some major lessons that you will need to bring with you as you enter 2008. As my father always told me, one of the keys of becoming a seasoned investor is to learn from both the market as a whole and your mistakes in particular. Here are some good nuggets from 2007 to contemplate before turning the page of your calendar to January.

1) Housing values can drop. Gone are the folks who claimed that “real estate never goes down!” 2007 cured anyone of that simple notion.
2) Credit crunches last longer than expected. When we first started to hear about “sub-prime” and “Alt-A” loans, they seemed to be self-contained issues. Clearly, that was not the case.
3) Corporate Execs can be accountable. After the dot-com bubble burst, few CEO’s stood up and took the blame. Both E. Stan O’Neal (Merrill Lynch) and Chuck Prince (Citigroup) not only accepted responsibility directly, they also lost their jobs in the process.
4) The Fed rules. The entire year was spent guessing what the Federal Reserve might do to alleviate the housing recession and the credit crunch. Each time investors thought they knew what would happen, Ben Bernanke and Co. veered in a different direction. Our 2008 wish for the central bankers is that they better coordinate policy action with their interim speeches.
5) Risk matters. When markets rise for long periods of time, investors can become complacent. 2007 forced investors to confront market volatility and the gut checks that resulted from the violent swings allowed many to better understand their personal risk tolerance. Of all of the lessons, this is the most practical one: be honest with yourself about risk and allocate your portfolio accordingly.

With one more day to go, those are just a few of the pearls of wisdom gleaned from 2007. As you look back on the year in your rear-view mirror, you are likely to find many more examples to bring into 2008. Luckily, we all have a day to rest before we start all over again.

HAPPY NEW YEAR!