Sir John Templeton was a twentieth century American-born British investor, banker and fund manager. He entered the mutual fund market and created the Templeton Growth Fund, which grew an average of more than 15 percent per year for 38 years. He once said, “It takes the greatest patience to buy when others are restless and to sell when others are buying.” Warren Buffett once said that investors should be wise “When others are greedy they are afraid, and when others are afraid they are greedy.”
Easier said than done, I hear you say. How do you keep your head around when everyone else is losing theirs? Contrasting thinking has always been a great strategy and one that I have employed extensively over the years. Of course, to be honest. It takes patience, discipline, and very little emotion to think differently to the crowd. These are symptoms that sometimes have to be wired (or really forced into) your brain. Especially when you are losing money. Given that each asset class is down, it will pay off to be less sentimental, endless patience, and more discipline than ever. Testing time with investment. for all of us. including me. But I’ve been here before.
In early 2009, and the last really terrible market in my 35 years of financial memory, the world was exploding. Through 2007–2009, what was known as the “financial crisis” actually began years ago with cheap loans that fueled a housing bubble that resulted in people losing jobs, savings and the cost of their homes. ended. Large institutions such as Bear Stearns and Lehman Brothers, which are known for their risk-taking, also collapsed as they held large positions in subprime and other low-rated mortgage tranches, when people just couldn’t pay while securing the underlying mortgage. and was started by default on. The stock markets were taking a hit.
The two-month period from January 1-February 27, 2009 represents the worst start to a year in the history of the S&P 500, down nearly 19 percent. By March 2, the Dow had fallen more than 50 percent from its October 2007 high. The decline has been compared to the Great Depression of 1929, which was 53 percent between September 1929 and March 1931. It was a mess.
I’ve always had a conflicting head about myself. I’ve never been mainstream and consequently never indulge in fads or trends (sometimes to my detriment), but in March 2009, I was watching the markets collapse and thought it would end at some point. Should be. I needed a trigger and this was something out of nowhere that proved to be one. Stocks were getting cheaper and I had the leverage of some smart analysts around me to help with valuations. It appeared that some great companies were selling for much less than they actually were. The economy was going through a complete recession. Bankers and banks were blamed for taking big bonuses and sucking the consumer dry. There was upheaval in the world. The markets had not seen anything like this since the September 11 attacks. Unemployment reached 10 percent. Nearly 4 million Americans lost their homes due to foreclosure, up 81 percent in 2008 and 225 percent compared to 2006. The news couldn’t have been worse. The question for me was where does it end?
I was reading Barron’s newspaper one Saturday morning in March 2009 and I opened the front page. I don’t remember the title of the article specifically, but it was a piece speaking about turmoil in the markets. Actually, the whole newspaper was full of bad news. I remember a separate line which said, “…the small investor is selling.“A lightbulb went off. I knew from experience (and especially the experience of the dot com bubble in 2000) that The small investor is always the last to go in and the last to exit. This was the opportunity I had been waiting for. I identified what I wanted to buy on my watchlist and ranked them 1-10, 1 being my highest belief. On a separate note that we won’t dig into the details, I went to the wife and asked about re-mortgaging the house to invest in shares as it was an opportunity of a lifetime. I got a quick “no”, so that was the end of it. Anyway, the next Monday, I was filling my shoes with stocks that I believed were at least 100 percent more than what I was paying. Many of them were trading on their cash level. The thing was it didn’t feel comfortable at all, in fact it was quite scary. The market was giving me companies that I thought were free money, but ignoring your feelings for now as it was for me, it may be the biggest part of your investment arsenal. The passage of government bailout packages soon after the collapse stabilized stock markets, hitting a low in March 2009 and then entering the longest bull market in its history.
So what lessons can you take from history and apply to today’s markets? It’s a cliché, but history really does repeat itself and especially with overall market cycles. It’s been a long time for me to recognize a big one and a big one is definitely in play now. Consider the following broad framework for investing in the current environment.
the world is circular
The world is made up of cycles. Lots of small, medium and large. They are present all around us. Planetary, biological, physics, as well as business and economic. Also the mathematics of the waves of those chakras. The stock market is also made up of cycles. One difference I’ve noticed with stock market cycles compared to others over the years is that they have a hell of a lot of emotion tied up in them. Look at the examples I’ve given earlier. How did you feel in the depths of the 1992 recession? How did you feel when the property market crashed in 2007, and how did you feel when DotCom was at a loss in 2002? As a result, how did you feel at the top of those chakras before the crater formed? Great, isn’t it? One thing to remember is that going down always feels bad. As humans, we have a pessimistic bias that refers to the tendency to underestimate the likelihood of negative events by overestimating the likelihood of positive events. This can lead to a very depressive outlook on the world. The tendency to overemphasize the negative can impact the choices we make and the risks they are willing to take. It’s the same principle as to why “bad news sells.” Also, if you are constantly surrounding yourself with doomsdayers, you may become very depressed about the future and this leads to deep depression. The problem is that most investors and traders either fail to recognize that markets are cyclical or forget to expect the end of the current market phase.
Below is a great reminder of stock market cycles, as well as the sentiment that goes with them. Personally, I believe we are somehow in between denial and panic, but that is a subjective opinion. I have made some of my best investments on the fear of other people. This includes stocks, not just markets, so it can be applied to anything financially related. A cycle can last anywhere from a few weeks to several years, depending on the underlying cause in question.
patience is your friend
Use cyclical patterns of markets and stocks to aid timing on entry. Being patient and waiting for that perfect moment can save you a lot of stress and of course a lot of money. Financial crises in history often result in a major failure. LTCM (1998) WorldCom (2002) And Lehman (2008), Beware of these types of events as they can signal a bottom out. So recognize where we are now, and as much as I don’t like to see failure, some institutions will fall spectacularly, and it is here that it may signal some sort of bottom-up. stock market cycle Estimated economic cycle generally 6-12 months on average, The cycles are familiar – the expansion and contracting of the economy and the rise and fall of the market. Our emotions often flow in recurring ups and downs.
to be ready
So you have recognized where we are in the cycle. The next step is to choose your shares. Keep a watch list. You can do this through Google, Yahoo or paid services that will alert you. Make sure you figure out what you want to buy, at what level and valuation, and how much of your risk determines whether you should fill your shoes. Being prepared is half the battle. We are the world’s largest investor in vision. Sadly, this is where the emotions will beat you. Historically my big purchases have been when the world is theoretically going to cave. This of course has never happened, but your spirit will make you believe it and so you will miss that opportunity. as a great investor Peter Lynch once said, “The most important lesson I’ve learned about being a successful investor is the need to maintain emotional piece”.
Lastly, many of these points may be straightforward and you can even say that you are already doing them. The top question is, what moves a stock from price to value? Everything is cheap and getting cheaper at the moment. Some of the technical names I’m seeing now I expect to go to zero. So where do you look if everything is on sale?
Look for under-covered names that have been rejected by the market. These include market top IPOs, new secondary listings, split offs, carveouts, spinoffs and…
Credit: www.forbes.com /