“It’s time for another aside: If you look at the last two tables—those showing big losses in 2008 and big gains in 2009—it’s easy to conclude that the two years together were something of a non-event. For example, if you put $100 into the Credit Suisse Leveraged Loan Index on the first day of 2008, you would have lost 29% over the course of the year and had only $71 left at the end. But then you would have gained 45% in 2009 and ended up with $103 at the conclusion of the two-year period, for a net gain of $3. The two-year results in the asset classes listed above ranged from moderate net losses to moderate net gains. It matters enormously, however, what you did in between. Yes, holding on would have enabled you to recoup most or all of your losses and end up well, with results as described above. But if you lost your nerve and sold at the trough—or if, having bought with borrowed money, you received a margin call you couldn’t meet and saw your positions sold out from under you—you experienced the decline but not the recovery, and your net result in this “non-event” two-year period was disastrous. For this reason, it’s important to note that exiting the market after a decline—and thus failing to participate in a cyclical rebound—is truly the cardinal sin in investing. Experiencing a mark-to-market loss in the downward phase of a cycle isn’t fatal in and of itself, as long as you hold through the beneficial upward part as well. It’s converting that downward fluctuation into a permanent loss by selling out at the bottom that’s really terrible. Thus understanding cycles and having the emotional and financial wherewithal needed to live through them are essential ingredients in investment success.”