My investment philosophy changed dramatically after the crash 2008-2009.  Everything, I had been taught no longer seemed to make sense. I saw the impact that the crash had on my clients and others.  While I had also been around during 2000-2002, I was a fairly new advisor, and in my opinion the principles of diversification seemed to work better during that period.  Yet in 2008-09 the correlations between all equity investments seemed to tighten.  What that means is that diversification of assets classes didn't really help as expected to lower downside losses.

 It wasn't just the market decline that changed my philosophy, but a presentation that I had seen in 2007.  I had the fortune to see a presentation by Ed Easterling from Crestmont Research.  At the time he spoke, I will have to admit I wasn't ready for what he was "selling".  The information he shared was so different that I was unable to accept it at the time.  Even today, in my opinion most advisors do not use these principals.  The chart I have here comes from Crescent Research.

   During the summer of 2008 I began to read the book  "Unexpected Returns" by Ed Easterling.  This book was given to me at the meeting I mentioned before.  Why I decided to pick it up as opposed the all of the other books I owed, I don't know.  As I read it, it helped me get what I believe is a more complete view of how the markets cycle, and what are some of the causes.  The basic concept is of Rowing and Sailing.  As you will see in the above chart, the Green areas represent times of Sailing while the Red are times to Row.  During Sailing times, the market will help you achieve your returns.  When it comes time to Row, you will need an investment manager that has tools to help them navigate these markets.  My current process is to use both types of managers, as one never knows where the markets will go next.  I feel this helps give my clients the best chance of reaching their goals.