Be fearful when others are greedy, and greedy when others are fearful.

Mathias Cobb

Bitcoin & Crypto

12 mins

Oct 10, 2022 14:41

I've done very well by following Warren Buffett's investment philosophy of "being fearful when others are greedy, and greedy when others are fearful."

I remember vividly the days during the Great Recession when the stock market was in freefall. It was a scary time, but I also saw it as an opportunity. I methodically went through companies, preparing a watch list of stocks I wanted to buy when the market hit bottom. I was ready when the market finally turned around, and I've continued to use this same method ever since. It's a great way to find good companies to invest in during tough times.

It's always interesting to me to read comments and takeaways from market analysts after a big event. There's always a lot of sour grapes and hindsight 20/20, but one thing I think is always missing from the conversation is a recognition of the role that investor emotion plays in driving market cycles. It's something that few commentators ever recognize or speak about, but it's the one thing you can rely on to drive markets (usually incorrectly) most of the time. Investors chase quick money as prices rise and flee in fear when they decline on future news flow. Nothing can be further to what you need to be successful. Remember, risk decreases as the market falls as companies become cheaper, it doesn't increase. It just may seem like the opposite.

There's something to be said for following your gut instinct. Sometimes, you just know what feels right - and that can be a powerful guide in life.

I must admit, I have never been at the very top academically - I’ve relied on employing smarter people around me for the detail and it works fine that way - but for years I’ve recognized and developed my natural intuition. Something I inherited from my dearly departed Mom. The ability to acquire knowledge or cognition directly without using clear logic or inference is a valuable attribute and should be harnessed and developed if you are involved in picking stocks. Some may argue with me, but at the end of the day, more art than science goes into investing. It's challenging to use short-term trading methods to successfully trade without an intuitive understanding of the markets. Intuition is experience built up over time that you put into practice naturally. You should always trust your intuition when it comes to stock picking (or anything else for that matter). If more common sense is applied over analysis, there would be many less loss-making positions. “Paralysis by analysis” is a term that many stock analysts are guilty of. The chance to show their knowledge and skill of analyzing every single detail means they often can’t see the wood for the trees. This is the difference between a Stock Analyst and a Portfolio Manager. The latter usually have more intuition than the former, that’s why frequently good analysts don’t necessarily make good PMs.

It's evident that many investors are still inclined to buy at the top and sell at the bottom, playing into Buffett's advice. It's a sad fact that they are the last ones in and the last ones out historically on every market cycle. If we remain emotional creatures, this isn't likely to end soon.

The doomsayers will say anything for headlines. They'll exaggerate the facts, or make up stories altogether, just to get people to click on their articles.

In my opinion, we are not yet at the point of extreme fear that is necessary for a market bottom. However, I believe that the time to buy markets, stocks, or anything else for the best returns is when other people are in distress. This is when most investors, commentators, and even the media become despondent. Social media will be against you. Just know that none of these accounts are responsible or care about your positions. They are after clicks. Bad news sells. The environment will essentially look to be like there is no hope. It’s characterized by the most pain. The investment is well below what you paid for it, the outlook is bad, and the price continues to move against you. You may have bought on the way up or the early markdown phase and you are at the point of just throwing the towel in. What you have to remember is fear moves faster and lasts longer than most ever anticipate, and emotion and investing don’t mix. It’s right here that you have to decide how much risk do you have or are you just looking at your losses? Invest and start with risk, not P&L.

The end is not nigh! At least, not according to the latest scientific research.

It can be difficult for investors when stock prices stay cheap for a long period of time. However, it is important to remember that markets can take a while to recover from crashes or other events. For example, it took the American stock market until the middle of 2013 to recover from the fall 2008 stock market crash.Investors should try to pick stocks with a notable catalyst, as it may take some time for things to turn around. This is something that our firm specializes in.

Investors should take advantage of bear markets by averaging down on their positions. By buying stocks at ever-lower prices, they increase their chances of making a profit in the future. However, investors should be careful not to get caught up in the panic of a bear market, and should instead focus on the long-term prospects of their investments.

The Trade is a great way to get information on the latest news and events happening around the world.

I remember distinctly opening up Barron's one Saturday (as I still do today), and it was full of doom and gloom. However, one thing stood out to me. There was a lead article that was speaking about the market fall and some words stood out to me in all the noise: “The small investor was selling.” I hadn’t really been waiting on this, but call it experience, skill, intuition, judgment, or just pure luck, it was my call to start buying stocks on Monday. In March 2009, I bought some of the best bargains ever in the market. Some were even below their cash current assets. I felt good about it too. I had been ready. Preparation was a big part of it. This one small thing triggered what I knew was right and merely indicated the timing. I'm always on the lookout for market opportunities, and I was ready to pounce when I saw the opportunity in 2009. I believe that preparation and timing are everything in the market, and I'm always striving to improve my skills in both areas.

1. Risk is always the primary concern when it comes to investments. 2. Always have a plan for how you'll exit a position if things go south. 3. Don't get too attached to any one investment. 4. Be patient and stay the course even when it feels like things aren't going your way. 5. Remember that the goal is to make money in the long run, not just the short term.

1. There is a popular belief that you can learn from history, but I believe that this is not the case. The market is set up to fool you, and I have seen this firsthand through the many cycles I have lived through. While the market may go up and down, it always comes back in different disguises. As such, I believe that it is not possible to learn from history, and that the market is set up to deceive us.
2. You should always trust your intuition when it comes to making investment decisions. Keep a watch list of names you want to buy and associated valuations so that you can make the best decisions possible.
3. Don't believe the doomsayers—the market isn't going to zero. If you're investing in quality companies like those in the S&P 500, you'll be just fine. So relax, go fishing, and enjoy your life—the market will take care of itself.
4. Investing in the stock market can be a great way to grow your wealth over time. However, it's important to remember that stock prices can go down as well as up, and it may take a while for prices to recover after a market downturn. Patience is key when investing in stocks, and most investors would be better off if they let go of their fears and rode out the ups and downs of the market.
5. The small investor will be selling at the bottom. This is the biggest signal of a turn in sentiment. According to the data, 69% to 84% of retail investors lose money in stocks. Ensure this isn’t you. The data shows that most small investors lose money in stocks. However, you can be part of the minority that makes money if you are smart about your investments.

We believe that everyone should have the opportunity to invest in the types of companies and projects that they are passionate about. That's why we're excited to offer our research services to anyone who is interested in using a catalyst to make their investments. Whether you're a large or small investor, we'll be happy to chat with you about your options.

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