About 10 days ago, we had an anomaly in the markets that found large public companies trading at $0.01 and the S&P 500 Index falling more than 12% in a few minutes. Now that the very brief storm has passed, I wanted to get in touch on the two items that precipitated this and provide you with some further details.

While it has been ruled out that the "fat finger" trade caused the precipitous drop, the conversation has changed to high-frequency trading systems. Let me be clear that we may never know exactly what happened. Still, we should remember the important lessons this reinforced: that markets are volatile and we need to account for situations like this. In other words, we know that there will be crises. Therefore, we incorporate the risks into our investment policy statement, ensuring that we don't take more risk than is appropriate to our unique situation. Those who fail to do so are prone to panicked selling. Remember, if there were no risk, then there would be no higher expected return from investing in stocks. Think back to October 1987: A 23% drop in one day. What was the cause? High-frequency trading which led to a cascade of sale orders and collapsing prices.

So what does October 1987 and 10 days ago have in common? From Larry Swedroe’s blog post on Lessons Learned from the Greek Tragedy

http://moneywatch.bnet.com/investing/blog/wise-investing/lessons-learned-from-the-greek-tragedy/1416/?tag=col1;blog-river:

“Each year the market provides us with many lessons, or, what more appropriately should be called remedial courses — because the market teaches the same lessons over and over again. Paraphrasing Harry Truman, there's nothing new in investing, just the investment history you don't know. The Greek crisis is just another example.”

Are you aware that we have had at least 15 major financial crises in the world over the past 40 years? On average one every three years.  Larry's blog touches on each of the 15 crises and sums up with the following:

“As much as we would like to think otherwise, none of us has a clear crystal ball to protect us from financial crises. Thus, the right strategy is to recognize that financial crises and the bear markets that accompany them will occur, and they will likely continue to occur with great persistence. The only things we don't know are the sources of future crises, when they will happen, how long they will last and how deep they will be.

“Therefore, you're best served by having an investment plan that accepts the inevitability of such events and having the wisdom to know that the best strategy is learn what Warren Buffett learned: “We continue to make more money when snoring than when active.’”

Larry Swedroe also discusses the current market activity and recent events on CBS’s MoneyWatch Web site. I’m sure you’ll enjoy hearing Larry’s brief conversation with Eric Schurenberg, editor-in-chief of CBS’s MoneyWatch.

Larry discusses several topics including:

• His take on stocks and the Greek debt crisis
• The role of familiarity when it comes to international investments
• Risk when it comes to growth-company stocks and small-company stocks

 Larry Swedroe MoneyWatch Link – Available on the Squire Wealth Advisors Website

http://www.squirewealthadvisors.com/index.php/resources/videos.html