Can we really learn from the past?

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To form an investment strategy, it helps to have some theory of how financial markets work. We need some guiding principles to help establish which choices are likely to help us shelter or grow our wealth, and which are likely to diminish it. A good first step would be to look at what happened in the past and attempt to draw out insights that could help us navigate the future.

That’s why investors study past market events and try to reconstruct what happened. For example, keen students of financial history will examine the circumstances leading up to past market crashes and look for similar signs today. These red flags could then be used to estimate the likelihood of it happening again, and investors might be able to position their investments accordingly. But unfortunately, past performance is not a guide to the future. History doesn’t leave neat lessons lying around.

This article isn’t personal advice. Remember, investments…

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