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Weekend reading: Download a free e-version of Ray Dalio’s new Big Debt Crisis survival handbook

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What caught my eye this week.

I can’t believe it’s 10 years since those crazy weeks of 2008, when the fall of the US bank Lehman Brothers took the global financial system to the edge.

But I guess I have my own additional reasons to feel this way.

At the height of the financial crisis, my father was unconscious in intensive care. He’d had a massive heart attack, but somehow survived it.

In our last conversation he’d gently ribbed me with the news that Lloyds had swooped for HBOS. In the previous one I’d mentioned that I couldn’t get into the share dealing account I held with the latter because its entire website had ground to a halt.

“Oh well, it’s only money,” he’d said, more or less. Typically.

My then near-secret passion of the stock market and the runaway train of real-life had collided and blown up in front of me – in the headlines, in a hospital, in my portfolio, on my mind, all the time. For what seemed like an eternity but was only really a week or so, I was propped up at all hours distracting myself reading The Snowball in some hidden corner of the hospital. I’d buy a couple of newspapers from the reception area each morning – the FT and a changing companion – to keep track of the other drama going on in the world.

My dad’s heart machine bleeped, but that was about it. Day after day.

Bleep. Bleep.

I count myself fortunate to have been away from any TV during 9/11, and I was also without Bloomberg or CNBC – or much of an Internet connection – for the worst days of this latest New York drama, too.

But I survived, as did the system.

As did my dad, for a little while longer, for which I’m grateful.

Making a model out of a mountain of debt

I share all this to say that for me the financial crisis really was a one-off.

Not so for famed fund manager Ray Dalio, though. Roaming through history and across the globe, the billionaire says he has found similar events all over. And he’s gathered what he knows in a new book, Big Debt Crises.

Dalio explains:

After repeatedly being bit by events I never encountered before, I was driven to go beyond my own personal experiences to examine all the big economic and market movements in history, and to do that in a way that would make them virtual experiences—i.e., so that they would show up to me as though I was experiencing them in real time. That way I would have to place my market bets as if I only knew what happened up until that moment.

I did that by studying historical cases chronologically and in great detail, experiencing them day by day and month by month.

This gave me a much broader and deeper perspective than if I had limited my perspective to my own direct experiences.

Dalio has now collected and condensed this unusual research for the edification of all. Big Debt Crises is huge, and stuffed with diagrams and data. I admit I’ve only skimmed it so far. It seems cheap at c.£12 on Kindle.

However the even better news is you can currently download it as a PDF for free!

Go to Dalio’s website, and scroll down to the appropriate box to submit your email address. You’ll be signed up for marketing emails, but you can immediately unsubscribe after downloading the e-book if you want to.

Dalio claims the models that his firm Bridgewater created on the back of this research helped it do well in 2008 when so many floundered.

Forewarned is forearmed and all that, but I hope we don’t have to test the thesis again anytime too soon.

Where were you during the financial crisis ten years ago, and what were you thinking? It’d be interesting to hear some more personal (and I guess ideally not political) recollections in the comments below.

From Monevator

Commercial property: What can we expect from this asset class? – Monevator

From the archive-ator: Wall Street made this mess, Wall Street must pay for it – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Help to Save scheme finally launched – Sky News

Mike Ashley launches tirade against Sports Direct shareholders – Guardian

Millions headed for retirement poverty, despite pension record numbers – ThisIsMoney

US investors who bought the day before the Lehman Bros collapse are up 130% – CNBC

UK man loses 96% of his life savings trading cryptocurrencies – CNN

Is UK property still a good investment? [Search result]FT

West Sussex named as top county for pensioners to retire to – ThisIsMoney

(Click to enlarge)

iPhone prices have increased, bucking the age-old trend for electronics – via Asymco

Products and services

Hargreaves Lansdown’ launches ‘pick and mix’ Active Savings service – Hargreaves Lansdown

Barclays’ new fixed-rate account pays 1.8%, unusually allows one monthly withdrawal – ThisIsMoney

Ratesetter will pay you £100 [and me a bonus] if you invest £1,000 with them for a year – Ratesetter

Why you might consider buying a home with Airbnb appeal – ThisIsMoney

Energy giant SSE blames price cap and hot weather for profit warning – Guardian

Fundsmith founder Terry Smith readying a small cap fund – ThisIsMoney

Comment and opinion

Long-term news… – Morgan Housel

…and more on long, long-term thinking – Of Dollars and Data

Why bull markets are dangerous – Rick Ferri (via Mike)

You do you: Passive investing edition – Abnormal Returns

Saving rate versus spending rate – Get Rich Slowly

Live local, think global – The Escape Artist

Why you shouldn’t pay too much attention to net worth – Oblivious Investor

Millennials dreaming of retiring at 30 have a math problem – Bloomberg

Is software eating value investing? – A Wealth of Common Sense

Does currency hedging reduce volatility? [US but relevant]Pension Partners

The problem for active management isn’t indexing – Morningstar

A beginner’s guide to investing in companies for dividends [PDF]UK Value Investor

Liquid superfood HUEL challenge – TheFIREStarter

The misleading lessons of history [For asset allocation nerds]Flirting with Models

Kindle book bargains

The $100 Startup: Fire Your Boss, Do What You Love and Work Better To Live More by Chris Guillebeau – £0.99 on Kindle

Small Change: Money Mishaps and How to Avoid Them by Dan Ariely – £0.99 on Kindle

Body Language in the Workplace by Allan & Barbara Pease – £0.99 on Kindle

Your Money or Your Life: A Practical Guide to Getting – and Staying – on Top of Your Finances by Alvin Hall – £0.99 on Kindle

Brexit

Day-to-day effects of a No Deal Brexit stressed in new impact papers – Guardian

10 considerations before going to cash over Brexit – The Evidence-based Investor

BOE Governor Carney warns house prices could be 35% lower in No Deal Brexit – BBC

Top Brexiteers call for Star Wars missile defense shield and Falklands navy – Sun

Off our beat

Why we buy the things we buy – Vox

Elon Musk’s brain isn’t like yours [On genius]Bloomberg

Where the Wild Things are – David Perell

The reality stars and Russian trolls of the brand new ‘Busytown’ [Illustration]Topic

The iPhone franchise – Stratechery

AI is helping SETI researchers track down mysterious (alien?) radio bursts – Berkeley UC

And finally…

“I don’t believe in panicking before it’s absolutely necessary but I came close to considering it on the morning of 7 October 2008.”
– Alistair Darling, Back from the Brink: 1000 Days at Number 11

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{ 28 comments… add one }
  • 1 { in·deed·a·bly } September 14, 2018, 11:12 pm

    > Where were you during the financial crisis ten years ago, and what were you thinking?

    I’d just migrated to the UK, with a dependent wife and child in tow. The visa I was on was due to expire in a couple of months, and to obtain a renewal required earning a fairly high number to demonstrate I could support myself and my family “without recourse to public funds”.

    Then GFC happened. Northern Rock busted, shotgun wedding for HBOS, and the nationalisation of RBS and Lloyds.

    The following Monday my large insurer employer summonsed all us freelancers to a town hall meeting and announced we could either take a 20% rate cut, or piss off. They weren’t exposed to significant counterparts risk, nor were their reserves invested in anything more exotic than treasury bonds. It was pure London Market opportunism.

    I took the rate cut on the chin (nobody was hiring), worked a lot of extra hours, and managed to scrape over the earnings line to obtain the visa renewal.

    Things worked out, but it was certainly a rollercoaster ride!

  • 2 Lord September 15, 2018, 12:13 am

    It was quite obvious that crypto like Bitcoin were being pumped up late last year. Even my Japanese teacher started asking me about it – she knows I like investing – I instead steered her towards some standard Vanguard ETFs.

    That guy that lost 96% of his funds in it. I feel sorry for him; it’s quite easy to get caught up in the hysteria of these things if you’re not normally into investing and don’t know your way round so much. Even for people like us who love this stuff, we need to be cautious and there are so many unknown unknowns; but with bitcoin there was from nowhere this sudden hype bubble that blew up …. and someone somewhere has made a ton of money from this.

    Regulators were slow to anticipate it as well. It went from a niche, techie thing (where my friends in the game were desperate to get out cause of how dark the crypto scene was) that then went suddenly to the front pages of the Daily Telegraph. How did this come about and who was behind it?

    There is a case study in this somewhere. Pumping, network effects and the media, unregulated currencies, need for investor warnings… I don’t know.

  • 3 Learner September 15, 2018, 12:43 am

    The NY Times has a nice little series marking the 10th anniversary:
    https://www.nytimes.com/spotlight/financial-crisis-10-year-anniversary

  • 4 John B September 15, 2018, 5:50 am

    I’d just returned from 2 years working tax free in the US, 6 months travelling, and was about to embark on a very lucrative contract, as I’d discovered salary sacrifice. I didn’t touch my smallish equity portfolio, and had my ‘house money’ with Nationwide where it earned 8% while being as solid as a rock. I got a lovely photo of people queuing outside the Bank of England, but that was for London Open House tours!

    As for what I thought, I was worried but realised that doing anything was too late, and would just have crystalised losses. So I just waited it out.

  • 5 Bill September 15, 2018, 6:52 am

    An anecdote from 2008.
    One my friends worked at Lehmans. In the run up to its collapse our circle were trolling him with questions such as “What office art are you going to pinch in lieu of your wages?” etc.
    Had no idea that it would actually be allowed to fail.
    And, obviously, he didn’t lift anything on his way out.
    A few years later my employer, 2e2, failed after being burdened with way too much debt by a private equity firm. That was far less of a shock!

  • 6 Brod September 15, 2018, 9:22 am

    I well remember the “end of the world” feeling and headlines. It really was scary. I was also working in the City, so it seemed very immediate.

    Luckily, I was in the middle of transferring SIPP provider and the holdings didn’t seem to match for in specie transfer, so I opted for cash transfer at the precise moment the bottom fell out. I was all in cash for quite along time (18 months? a year)? and the market was well off the bottom before I finally screwed up all my courage and bought back in. Still got 20-25% bonus units though, when all was said and done. Which was rather nice.

    Then I was made redundant in late 2009 and went contracting, which really worked out well and allowed us to buy our family home as prices began to lift off in 2012.

    So, in a totally unplanned and completely fluky way, I came out rather well. And also underlined to me how big a role luck plays in life.

  • 7 Srb September 15, 2018, 10:17 am

    I remember watching the value of my stocks and shares Isa drop from 12.5k to 8k during the financial crisis and wondered what to do
    A few times it dropped then dropped again and I considered selling. I held on in the hope it would recover which it eventually did and has been a good investment since those dark days.
    Those investments made up a good proportion of my wealth at the time. It wasn’t easy at all to watch them lose so much value but it taught me the value of investing for the long term and that there will be periods when your investments can lose money quite quickly and that you have to take the peaks and troughs and look at the long term returns (and pray and hope things will recover!).

  • 8 Anon September 15, 2018, 12:06 pm

    I was contracting at Bear Stearns during the crash. Interesting times.

  • 9 Harii Seldon September 15, 2018, 12:14 pm

    September 2008 , I had retired early (49) in late 2007 with an almost 100% equity portfolio and no pensions…sequence of returns risk…

    It all worked out well , I had dumped a portfolio of individual high yield shares in the April of 2008, disposing of all the banks etc I directly held and some judicious choice of replacement investment trusts with the proceeds worked out very well. 50% markdown by March 2009 and a 4x + recovery from the lows and living expenses covered since then, a good result but uncomfortable for awhile!

    Touching on yesterday’s article I held a significant share in my former business premises and this did and does provide a 10% yield on a pretty static capital view basis, the lack of correlation was a blessing , there was a void a few years later but markets were doing well by then. A quoted / fund property holding would not have provided the security of income that this illiquid property holding did. Whilst the income from this did not cover my loving expenses it was helpful and dividends help up surprisingly well during the crisis.

  • 10 arty September 15, 2018, 2:51 pm

    @Harii If it’s not rude to ask, do your loving expenses make up much of your costs? At least if things get tight I guess they could be cut pretty much down to zero…

  • 11 Ben September 15, 2018, 3:43 pm

    I graduated in 2006 and remember looking into investing now that I had money. Thinking the Northern Rock run was a superb buying opportunity and took the plunge, especially all the banks (look at the yields!). After all large banks like HBOS and RBS aren’t going anywhere! Ha.
    I now know my attitude to risk. Also did some calculations in 2013 when I liquidated to buy a house and not only was I up, I just about beat a bog standard savings account (my RBS holding is still down though).

    Anyway I found the Hargreaves Lansdown product interesting
    From the web site:
    ” Are there any charges?
    We don’t charge you directly, instead we charge the banks and building societies up to 0.25% of balances held per year. This means the same or similar products offered directly by the banks and building societies may have different interest rates to those available on Active Savings.”
    So basically how funds were sold, up until not so long ago, until they banned it?

    Finally, what are Monevator’s thoughts on the Help to Save? as you weren’t really a fan of the Lifetime Isa

  • 12 CM September 15, 2018, 3:53 pm

    I joined one of the UK banks that was subsequently nationalised about a week before Lehman went down…. It was a crazy time! I remember being grateful that I was on a 3 month notice period rather than a month, as I had been in my previous job, because at least I would have a few months cash to tide me over when what I assumed would be the inevitable happened…. I stayed at said nationalised bank for 9 years in the end….

  • 13 Algernond September 15, 2018, 4:20 pm

    This active savings thing from HL looks great. Is there a downside I wonder?

  • 14 dearieme September 15, 2018, 4:40 pm

    Our investment portfolio had been skilfully swapped from equities to gilts in late 1999, so that was all right. Perhaps I should have returned to equities in 2003 but our energies and attention were so consumed by health problems in the family that I paid no attention to investments. (Is this sort of thing a common problem for the amateur investor?)

    In 2007/08, however, we were lucky. A redundancy payment and a pension TFLS had recently cleared our debts, so there was one worry that we would be spared. The surplus money was held as cash while we decided what to do, and the interest on it flowed in tax-free while the redundant one had no earnings. At some point, I can’t remember when, we bought some ETC gold and silver. The gold proved OK; the silver proved very profitable. Meantime there was no problem with offspring job losses. Very lucky.

    My memory is that I was rather puzzled by events. It had seemed to me in 1987 that the stock market crash then was obviously an oddity and would soon be reversed. It had seemed to me in 1999 that the world had obviously gone mad and that the rational response was to sell equities. But in 2008/09 I had no feel for what was happening nor what would happen next. Such times suggest that it can work rather well if one spouse has one of those secure (if not very well paid) jobs that eventually brings a DB pension.

    Mind you, I am still puzzled. Has the reaction by governments and central banks really solved the problems of 2008, or has it just piled up worse problems for the future? My instinct on this is gloomy.

  • 15 YoungFIGuy September 15, 2018, 5:17 pm

    I was at uni at the time. It was quite scary because we wondered if there be any jobs for us when we graduated. It felt like overnight the job market turned.

    Whereas previously it seemed like one could walk into a job in the City, it became more difficult. It took a lot longer for many of us to find somewhere. It was pretty stressful.

    The main manifestation was that pay bands were frozen for several years. Given that was the main impact for me, I’ve gotta confess that I was unbelievably lucky.

  • 16 Chris September 15, 2018, 6:55 pm

    A couple of weeks after RBS (and this Natwest) had to be rescued by the government, we received a large cheque. My partner paid it in at Natwest. As they were clearly trained to, the teller asked if we would like to see their financial adviser. I could not resist. ” are you , the bank that has just been r escued by us, the taxpayers, suggesting that you have any advice to offer about managing our money?” To her credit the teller started to laugh, and so did the rest of the queue. The money didn’t stay there long….

  • 17 John September 15, 2018, 11:37 pm

    I was working at Morgan Stanley at the time getting regular staff wide mails insisting ‘our liquidity is good’. Was only later we found out it was all smoke and mirrors and MS was only 30 minutes away from collapsing too. Was fascinating hearing this exact phrase used in the great film The Big Short a few years ago.

  • 18 weenie September 16, 2018, 12:06 pm

    Working for a finance company, the repercussions hit us hard – over 100 people lost their jobs and my job was at risk though ultimately saved. I wasn’t invested back then as I was in a lot of debt with no plan B, and job prospects were looking slim and grim.

    I’m not convincced the banks have really learned their lessons from 2008, short memories not helped by the great Bull run.

  • 19 Neverland September 16, 2018, 12:32 pm

    Man who lost 96% on cryptocrap is a “consultant” on Bitcoin: https://www.crypto-consultant.co.uk/
    “I’ve set up this consultancy to provide clients with the knowledge that I have gained through researched and personal experience so that others can benefit with me.”
    Also a “property developer”…

  • 20 David Kennedy September 17, 2018, 1:47 am

    Where were you during the financial crisis ten years ago, and what were you thinking?

    I worked for a place called “bridgewater associates”, and had the “daily observations” to read every day to see how it was unfolding 😉

  • 21 theFIREstarter September 17, 2018, 10:34 am

    I was on a mountainside walking the Inca trail as the 2008 FC kicked off. We were with a guy who worked in finance in New York who was trying to get reception in the Andes to check up what was going on and whether he still had a job! I had no idea about anything like that back then so was sightly bemused by the whole thing. We carried on travelling for another month or two and most of the
    worst headlines had happened by then so felt like we missed it all really, however still had the pay freeze for the next 3 years or whatever it was… So didn’t escape in the slightest in that sense! Still at least I actually had a job to come back to so can’t complain.

    Thanks as always for the link. I really had no idea that would make it onto Monevator… You continue to surprise and delight me 🙂

  • 22 Fremantle September 17, 2018, 1:09 pm

    I made my first foray into consciously investing in September 2007, awkwardly spreading my hard earned through a series of little understood investments in the like of Rio Tinto, BP, BHP, United Utilities, Land Securities, RBS, Vodafone (‘the names you know, the names you trust’), and a couple of hail maries in the shape of Regal Petroleum and Mulberry. I held on through ’08 and ’09, and then counted myself lucky that Mulberry went through the roof, no small thanks to the fact that a senior designer for the luxury brand happened to be the wife of the new PM. I sold up in ’11 and exited the market completely to buy a house.

    It wasn’t until 2014 that I consciously invested again, taking control of forgotten about pensions and being amazed at the generosity of 40% tax relief and more recently employer contributions. Through Tim Hale and Monevator, I’m a much better informed investor, and hopefully, better prepared for the future.

  • 23 The Investor September 17, 2018, 5:20 pm

    @all — Thanks for sharing all these recollections, they’ve made interesting reading!

  • 24 Malcolm Beaton September 17, 2018, 8:19 pm

    I was deep in the Arabian desert with no mobile reception
    Was a a Boglehead with fire and forget Portfolio-3 Index Funds plus some cash
    It was all over by the time I returned and the Portfolio continued upwards to this day
    Heard some truly horrendous stories on my return especially one where a friend filled all his 4 children’s bank accounts up to the protected limit -£85000? in one afternoon
    Luckily he was on good terms with them and got it all back!
    xxd09

  • 25 old_eyes September 17, 2018, 9:13 pm

    July 2001 I bailed from a corporate job and set up on my own. 11th of September I was on my way to talk to my first potential real client when I saw crowds around the electronics shops on Tottenham Court Road watching TV. Yes, it was 9/11. My meeting was cancelled and nobody picked up the phone for the next 6 months. That was squeaky bum time with young kids at home and a mortgage.

    Roll forward to 2008 and I had survived, picked up business and kept food on the table and a roof over our heads. I had just about recovered the exit money I got from the corporate job and had started a personal pension and paid down a chunk of mortgage. So when clients cancelled all that could be cancelled and the phones went dead, I knew what to do. Hunker down and keep plugging.

    Curiously what saved me was the public sector. The Government wanted to do things to deal with at least some of the fallout of the crisis, needed people with business experience, and did not want to hire permanent staff. I found some interesting work. It was half the rate I had been getting from private sector clients, but there was as much as I wanted to do, and in the next few years logged a lot of hours. Again we kept our heads above water and eventually I did join the organisation for full-time for several years, netting an OK salary and a few years of public sector pension to add to my corporate pension. Took early retirement a couple of years ago and returned to consulting, but at a much lower level of activity.

    Now we are being warned about the next recession. Wonder how I will survive that one?

  • 26 Scott September 18, 2018, 11:58 am

    @Neverland #19

    No Way! Is this guy serious?! Are you able to tell if his consultancy was set up before or after his losses were incurred?

  • 27 Learner September 19, 2018, 2:24 pm

    In 2008 I was blissfully ignorant of all things financial, was well employed, and it passed me by – though I did notice that my cash savings account no longer received 6% interest as it had as recently as 2007. However since then I’ve experienced two 20% one-day financial market drops compounded with a 50% drop (draw down) during a period of unemployment, so I feel like I’ve had a taste of the pointy end albeit several years later and not directly related to 2008.

  • 28 PendleWitch September 20, 2018, 7:24 pm

    In 2008 I was a stay at home mum, with our cash ‘safe’ in high-interest accounts in Iceland. oops. Lucky to get bailed out of that one. No debts and low mortgage at the time though. I also kept a store of food essentials, since the news really was looking bleak. (Paranoid, you say?!) In 2010 went back to work, and we saw our household income rise, bucking the general trend at that time. Pension contributions since have done well obviously. I’d say we were lucky generally; not true for many people though.

    Thanks for all the useful info you provide on this site!

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