Friday, March 6, 2009

Buy when there's blood in the streets!

Fear and panic are now setting in to this bear market. This is normal. People tend to follow each other and act more on emotions than on anything else. This is called the "herd mentality". Now that the stock market has surpassed the November '08 lows and have now reached levels not seen in 12 years, people are finally starting to throw in the towel. While I cannot say (like anyone else) when this bear market will end, I am beginning to see indicators (based on investor sentiment and actions) that we are near the bottom, which in the industry is called, "capitulation". In the past two weeks I have fielded calls from scared investors who have wanted to move their investments out of stocks and into cash, money markets, and gold. I have even spoken to an old high school friend who has decided to short the market! He believes that the Dow (Dow Jones Industrial Average) is going to go below 5000 before it bottoms, and a client I spoke with yesterday thinks it may go as low as 2000! That would be another 70% drop from where we are now! Again, while I nor anyone else cannot say when the bear market will end or how low it will go before it bottoms, I can say that it WILL end and history proves it. There has never been a bear market that did not end. So what can you do? If you are an investor, you can still invest for the future. There's an old stock market adage, "buy when there's blood in the streets". What does this mean?

"Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that "the time to buy is when there's blood in the streets." He should know. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon. But that's not the whole story. The original quote is believed to be "Buy when there's blood in the streets, even if the blood is your own!"

This is contrarian investing at its heart--the strongly held belief that the worse things seem in the market, the better the opportunities are for profit.

To read more about this topic, click on this link:

Buy When There's Blood In The Streets

In the meantime, decide if you are really an investor. Someone who buys CD's is not really an investor. This market is brutal, but it will eventually end. So what will you do?

3 comments:

Scott Roberts said...

Another way to put it is BLASH - Buy Low and Sell High.

Dennis said...

You are right. I wish I had some money right now there are many stocks at all time lows and many with very low multiples. If only I had money. If only I had guts.

James Anderson said...

In the short-term, sentiment and emotion rule the markets more than fundamentals. This type of trading pushes stock prices to extremes, whether the extreme is overbought or oversold. The contrarian investor would like to trade against these extremes and invest in the opposite direction of the herd.
Instead of tying up your cash for years in investments that might or might not create a return, you could be Contrarian Trading. Contrarian Trading is all about getting in and out of your trades within just a few weeks to minimize risk and still retain substantial gains.