Bond yields and the dollar are up, and practically everything that’s not “risk-free” is down: stocks, precious metals, cryptocurrency, you name it. Real estate is rolling over, and calls for a repeat of the 2008-2009 financial crisis are popping up in the mainstream media. So, is it time to panic-sell and hide under your bed for a year or two?
Before you start cleaning out the space under your bed, stop for a moment and consider the advice that older, more successful investors have been giving you for decades. They told you to buy when there’s blood in the streets. You’re supposed to buy in the red and sell in the green. This is what contrarian, value-focused investing is all about, after all.
Nearly everyone understands this concept and agrees with it, at least in principle. If you like a stock at $10, then unless there’s some fundamental change with the company, you should like the stock even more at $5.
However, there’s a deep divide between principle and practice, particularly when it comes to financial investing. In theory, we know that when the stock market goes down 20% and the VIX goes above 30, you’re supposed to be a net buyer, not a net seller.
It’s easy to say this when the markets are calm, but much more difficult to actually put it into practice when there’s turmoil. When the time comes to actually start buying, a natural fear starts to set in. You see famous, successful people in the media warning about a coming apocalypse.
You might see the CEOs of Goldman Sachs and JPMorgan warning that there’s a good chance of a recession ahead. Or, you might hear Amazon founder Jeff Bezos telling you to “batten down the hatches.” The list goes on and on.
The news outlets will dust off their “Markets in Turmoil” graphics, and self-proclaimed pundits on social media will declare that the “big one” is here. It’s enough to make your heart palpitate and your finger hit the “sell” button, if you let it get to you.
When this happens, start by taking a deep breath and consider the lessons that history has taught us. 20% market corrections have always recovered, and eventually stocks returned to their all-time highs every single time. The same can be said about precious metals and Bitcoin.
“But, what if stocks go down more?” That’s the persistent concern of worried traders during corrections and bear markets. Of course, it’s true that stock prices can go down more than they already have. After all, the only floor price is zero.
Yet, if you allowed the “what if stocks go down more” question prevent you from buying, then you would have missed out on every rally in the history of the markets. Besides, if you’re not buying when assets are low, when else are you going to buy them? When they’re high?
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After the “what if stocks go down more” question, worried investors will sometimes start to list the problems in the world and in the economy. Supply chains are disrupted, there’s a labor shortage in critical areas, inflation is high, the Federal Reserve is raising interest rates… There’s no end to the things to worry about in 2022 and 2023.
However, there’s always a list of problems whenever the markets go down. Remember, asset prices don’t fall without some sort of “catalyst,” which is really just an excuse for big-money investors to take profits at high prices.
It’s inevitable, and it happens again and again: just as the amateur traders are buying at the top of a bull market, the professionals are selling for a handsome profit. Then the asset prices start to roll over, and the amateurs hold on for a while, hoping the pain will end soon. If the pain persists, they can’t take it anymore and the retail traders sell near the bottom.
And, that’s when the professionals start to accumulate again. It’s as reliable as clockwork, but this vicious cycle victimizes a fresh batch of retail traders time and again. That’s why we try to educate as many people as possible, so they don’t have to be victims.
So, don’t worry about buying and sustaining short-term losses because assets went down more. Your job isn’t to try to catch the exact bottom of the market. Instead, ride on the backs of the big-money whales and buy what the amateurs are selling at low prices: whether it’s stocks, gold and silver, Bitcoin or something else, you don’t have to be perfect in order to be profitable.
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