Buy when there’s blood in the streets, even if the blood is your own.
Baron Rothschild, a British banker and politician from the wealthy international Rothschild family, once said that the best time to buy is “when there is blood in the streets.”
In simple words, when everyone else is selling, it’s a great time to purchase. However, this advise is far easier said than done. Although it seems logical advice, yet very few people follow it. (Btw, by streets we are referring wall street/ Dalal street or just the stock market.)
Why are people afraid to invest when the market is down?
Before diving more in-depth, let’s first understand why people are afraid to invest when the market is down.
For beginners, they are simply scared that the market may go further down and hence, it might not be the right time to invest. Sounds legit, right?
However, here the problem is that even the most experienced investors can’t time the market correctly and repeatedly. If you are planning to invest in the stocks at the bottom-most price, you would most probably fail. The better approach would be to buy when they are cheaper, not the cheapest.
On the other hand, the existing investors are afraid to invest further because they are already bathing in their blood. As many of the stocks in their portfolio may be in red, these investors might be scared to make further investments. However, this approach doesn’t sound correct, does it?
I mean, let’s assume that you bought some seeds to plant in your field which may produce big returns in the long-term. However, after a few months, the price of those seeds dropped significantly. What would you do? Would you buy more of those seeds so that you can enjoy a bigger discount and secure your future even further? Or will you just stay out of the market, even though you have a larger field left to sow?
In my opinion, it would be a better outlook to buy more seeds at a cheaper price which might produce a greater return in the future.
The Law of supply and demand
The laws of supply and demand say that whenever demand is lower, the price must come down.
Now, when there is blood in the streets, there is panic selling and a majority of people tend to sell their stocks. In such scenarios, the demand for the stocks decreases a lot compared to the supply.
And obviously, when demand is less (and the supply is more), you can buy stuff at a better discount. (On the contrary, when the market is high — the demand goes higher and hence the buyers have to purchase the same stock at a premium).
That’s why bad times make for good buys. Invest in the market when there’s blood in the street and you can get great bargains.
- Is Mr. Market Ripping you off?
- 14 Most Frequently Asked Stock Investing Questions by Beginners.
- 7 Best Value Investing Books That You Cannot Afford to Miss.
The market always gives opportunities, but only a few are brave enough to take it.
If you look at the stock market history, you can find that the market always gives opportunities to purchase shares at a lower price. Whether it was correction during March 2018 (after the announcement of re-introduction of LTCG tax) or the demonetization, the market has always given amazing opportunities to the buyers.
However, most people miss out on these opportunities as they are busy following the crowd. Nevertheless, buying when the market is high and trying to sell during the lows can never be profitable for investors.
Moreover, making emotional decisions to sell stocks when the market is down is always a mistake.
The history says that market rebounds, and over the long term, it always gives decent returns (And this is a fact). Even during the worst economic crisis of 2008 (when the market fell around 60%), the market bounced back to the same points within two years. The biggest losers at that time were ‘not’ the ones who bought the stocks at the highs of 2008, but the ones who ‘bought at high’ and ‘sold at low’ (just because they didn’t have patience).
And if the market can survive such a big crisis, then it will definitely recover short-term corrections (or bears) and give good returns for the long-term investors. The intelligent investors should consider these times as opportunities, rather than threats.
The Time To Act is NOW!
In one of my previous post, I had suggested starting building your watchlist as the market was high then. And if you’ve followed my suggestion then, you might already have a list of a few amazing companies with terrific return potential in the future. (Btw, I believe everyone should keep a watchlist so that they do not miss out opportunities like these).
Next, look into your watchlist and find out the current valuation of those stocks. If any of them are currently undervalued or even trading at a decent valuation, then it is the right time to act.
(Quick Note: You can also use the Trade Brains’ free online calculator to find the intrinsic value of the stocks. Here is the link to the calculator).
Final tip: The best stocks to invest are the ones already existing in your portfolio.
I learned this lesson years back when I read ‘One up on wall street’ by Peter Lynch. And I believe it is a necessary lesson to share in this post.
The best stocks to invest are the ones already existing in your portfolio. Maybe they are trading at a lower valuation, and your portfolio is in red. However, they are still the best options available to you.
You have already researched those stocks, and they are still in your portfolio only because you’re confident that it will perform well in the future. Then, why not to invest more in such stocks when they are selling even at a better discount. Look into your portfolio and find out those stocks which are currently trading at a cheaper price.
Quick Note: This tip doesn’t work for the newbie investors. If you’re new to stocks and haven’t yet researched or invested in stocks, then this article that can help you to pick winning stocks.
At last, here’s an amazing quote by Warren Buffett to end this post:
“I’ll tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful”— Warren Buffett“
That’s all. I hope this post was useful to you. Happy Investing.
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Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting