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I the bank could print the money, it would certainly do so when there was a cash shortage – i.e., when people needa lot o cash, when they can’t pay their debts, when they are selling their hotels, and when banks struggle to comeup with enough money to meet demand, because the players aren’t servicing their debts. Our kids would soonlearn that, all things being equal, printing more money causes its value (i.e., the currency) to all and the increasedmoney supply to buy hotels drives their prices up. But, i the bank prints more money when the demand or it ishigh, and there is a shortage o money when hotels are being dumped, and hotel prices are alling, then the currencywould not all in value and the prices o hotels would not rise, because the increased supply o money would simplynegate the eects o the shortage o it. That’s also what happened in 2008.In other words, in the years immediately prior to 2008, players in the economy took on a lot o debt to buy assetsat high prices, so in 2008 the game progressed to the stage where cash is in short supply, there are debt problems,and assets are written down or liquidated. Naturally, the central bank printed a lot o money, but this didn’t causeits value to all or ination to rise, because this increased supply o money negated some o the eects o theshortage.In Section II o the attached report, “A Template For Understanding What’s Going On”, we explain this debt/economic dynamic in a more eshed out way. I you only have a limited amount o time to read what we aresending, please stop reading this (and anything else that we gave you), and go read that.Because human nature and the basic elements o economics remain essentially the same over time, what happenedin 2008 has happened many times beore. However, unlike recessions that occur more requently, the dynamic thatoccurred in 2008 has happened less requently and has not happened within most people’s lietimes. Because itis in most people’s “nature” to learn rom their experiences, and because investors, businessmen, and governmentofcials did not previously experience the dynamic that happened in 2008, most o them 1) did not plan or it, 2)considered it implausible, and 3) didn’t understand it. That, more than any other reason, is why so many o themwere hurt in 2008.In other words, 2008 was a year in which those who built their strategies on the basis o what happened in theirrecent lietimes did not understand what happened in 2008 and so did badly, while those who had a perspective owhat happened in long ago times and araway places (and why these things happened) did well. Said dierently,i you optimize your investment strategy to work in a certain period without having a deep enough understandingo how it would work in all circumstances, including circumstances that did not occur within the period that’s yourrame o reerence, you will inevitably do very badly – and that is what happened to a lot o people in 2008.You have heard us speak o the importance o having a “timeless and universal” investment process, probably somuch that you are sick o this phrase. What we mean by it is that we believe that one’s investment process needsto have worked well in ALL COUNTRIES AND ALL TIME FRAMES in order to continue to work as things change,because it must be based on essential truths that include understandings o how things change over time. Webelieve that, i investors don’t do this, their process will work until it inevitably doesn’t work (i.e., until it blows up),because things will inevitably change in ways that aren’t understood and incorporated into the process. So, in myopinion, 2008 was a very important year o dierentiating those who operate this way rom those who don’t.Since I believe that a big common mistake that caused many investors problems in 2008 was not having a broadenough perspective, I believe that one o the most important lessons or those who did badly in 2008 is to
have a“timeless and universal investment” perspective
, which means to
broaden your perspective to understand whathappened in long ago times (e.g., in the 1930s) and araway places (like Japan and Latin America)
. Ask yoursel,“what would it be like i we had another year, or another two years, like last year,” because an examination o historyshows that this is well within the realm o possibilities. Nobody really knows what will happen, but we all need toconsider the ull range o possibilities, make sure that our strategies make the worst case scenarios tolerable (i.e.,really control risk!) and look or ways to maximize our opportunities. Taking a timeless and universal perspectivehelps us to do that.