Why I Fired My Broker Redux: Lessons From the Great Recession

Nearly two decades ago, in the midst of the horrors of the Great Recession, Jeffrey Goldberg, now editor-in-chief of The Atlantic, wrote what is probably the best personal finance article I’ve ever read: Why I Fired My Broker (The Atlantic, May, 2009).

Andy Kane

The stock market has produced extraordinary returns since this article was written, and many investors have never experienced a prolonged bear market. Here’s a look at Mr. Goldberg’s article plus my own experience with the Great Recession, with some ideas on how to keep yourself prepared for financial surprises.

The Grim Reality of 2008

The Great Recession was the most severe economic and financial meltdown since the Great Depression. It began in the United States with the bursting of the housing bubble in 2007, and eventually spread throughout the world. Here’s the common joke during the housing peak:

“I've always wanted to live in a million-dollar house. I just didn't think it would be this house.”

During the Great Recession, gross domestic product (GDP) declined significantly and unemployment doubled. Millions of people lost their homes, jobs and savings. The S&P 500 index fell by 57%, down to levels in 1997. Many people nearing retirement suddenly found themselves working much longer than they had planned.

For years, almost daily I could find an article on the latest personal finance disaster.

• A once successful father now living in his in-laws’ basement with his wife and children, wondering what happened.
• Millions of homes in foreclosure, with some courts—known as rocket dockets—processing cases in minutes.
• A man who lost his house, his job and his wife, spending a winter in a van in North Dakota with his son and his son’s girlfriend.

A Random Walk Down Wall Street 

Mr. Goldberg had invested carefully, following much of the standard advice still given today. Then he woke up to discover that he had taken "a random walk down Wall Street and got hit by a bus."
As his 401(k) shrank, advisors responded with familiar explanations about time, diversification and risk. To which Goldberg quotes Keynes: "In the long run, we are all dead."

He learned that even highly paid financial professionals rarely know where markets are headed. Many are far better at selling financial products than predicting the future.

The Illusion of "Chuck"

At the time, Charles Schwab was running its famous "Talk to Chuck" advertising campaign. Goldberg hoped Chuck could help him understand what had happened to his financial plan.

Instead, he discovered that brokers, wealth managers and television experts were no more capable of forecasting the crisis than anyone else. As Warren Buffett put it:

"Wall Street is a place where whatever can be sold will be sold."

Mr. Goldberg's conclusion was simple: brokerage firms are businesses first. Their interests do not always align with yours.

My View From the North Woods

I have followed markets forever. I remember the disaster my parents experienced in the 1973-74 market crash, one they never truly recovered from. I also remember the 1982 market bottom that launched one of the greatest bull markets in history, running nearly uninterrupted until the dot-com crash in 2000. The Dow Jones rose from a low of 777 to a high of nearly 12,000.

I remember reading a wild forecast in 1982 that the Dow could one day hit 3000. The Dow had barely moved since the 1960s. It’s now approaching 50,000.

And then I remember 2008. We personally lost 56% of our equities, high to low. I had recently taken a new job working for a small firm in a small town in Northern Minnesota. We had recently completed a major remodeling of our hundred-year-old home. We had just sent our oldest twin sons off to an expensive private college. I was stunned.

Mr. Goldberg wisely fired his broker. Actually, his broker fired him. He just stopped calling, and Mr. Goldberg got the message. They weren't much help because they didn't know what to do any more than Mr. Goldberg did. 

The Great Recession did end. By the time Mr. Goldberg was writing his article, the markets were already on a tear, although it was hard to see that through the carnage. While many sold all they had, never to trust markets or capitalism again, the U.S. stock market climbed from 2009 to 2020 when COVID hit, one of the longest running bull markets ever. The S&P 500 rose over four times.

Today the S&P 500 is roughly ten times its 2009 low.

The Survival Playbook

Fortunately, I had rarely trusted any financial advice, even from Charles Schwab (who is still about as good as it gets).

Here’s how my own recovery from the Great Recession went. I never lost my job. Although we lost a lot, year over year we lost a third of our net worth. Not great but not the disaster that it originally felt like.

• I never made any net sales from my depressed equities. I continued to make regular contributions to my 401(k), investing in now under-priced equities.
• We had paid off our house before the Great Recession. That wasn’t an accident. I grew up in a new home that never carried a mortgage, and before 1900, my great-grandfather purchased the house my grandfather and dad grew up in—also mortgage free. This has always been good advice for surviving a market crash. 
• The kids were safe at college. We saved that money over nearly twenty years and moved most of it into short-term fixed income investments before the crash. I had known that you shouldn’t invest any money you need in the next five years.

Without doing much, in less than five years we recovered all our losses.

The lesson I took from the Great Recession wasn't how to predict crashes. It was that crashes cannot be predicted reliably. The next crisis will look different from the last, but it will arrive. The goal isn't to avoid the downturn—it's to build a financial life that can survive it.