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2 Things You Should be Doing in these Panicked Markets

It has been a rough year so far in global equity markets. Global shares as measured by the MSCI World Index are down 26 percent which means we are officially in a bear market. The Nasdaq is down 32 percent, Bitcoin is down a whopping 60%. There is a war in Ukraine that has caused commodity prices to spike and thrown us into an upward inflationary spiral, and markets are expected to get worse.

Here are two things you should be doing in these complicated times.

1) Don't be Scared

When people look at the performance of the stock market they tend to look at the 1-month, 3 months, 6 months, and 12-month graphs. You need to go out 10, 20, 30, and 40 years to understand where we have come from and how far we can call. In the last 40 years, the Dow Jones Industrial Average has gone from 1,000 to 30,000 - that is a gain of 30x. That is a phenomenal run. That gain was fuelled by cheap money and low-interest rates. Interest rates cannot stay low forever. Easy money is not a viable long-term strategy. The cycle has to turn and we are heading into higher rates as the threat of inflation increases. Equity markets need to correct this - this is healthy. What do most people do when staring down the face of a loaded barrel like this? They start selling because there is blood in the water. As the panic increases, they sell more and by the time the market reaches the bottom they have cashed out. This is typical caveman-like behaviour known as flight or fight. When a 200kg saber tooth tiger is breathing down your neck you are going to run for your fucking life. What you should do is stand your ground. You need to go against everything your instincts are telling you and keep buying into this falling market. Investing is a long-term game and you need to better understand dollar cost averaging or rand cost averaging depending on your base currency. The secret to getting rich is making small disciplined monthly investments into the market. You never skip a beat. Every month you invest a fixed amount. If you have surplus cash you invest more, but you must always adhere to the minimum. The strategy is easy when the market is going up - not so easy when the market is going down. The secret is to be fearless. Look fear in the face and keep investing regardless of the market. That is what high-value men do.

2) Look for Opportunities

Lots of money can be made in moments of crisis. While high-value men are brave in the face of danger, most other people do not share this characteristic. They panic in the face of fear and they sell assets - good quality and bad quality. Fear is not rational. So what assets are sold in these bouts of panic? They sell shares, they sell real estate, they sell capital assets such as machinery, and they may even sell their businesses. These assets then go on sale and this is when you can find wonderful opportunities. During the crash, Amazon fell 90%. In August 2001 it was trading at 45 cents. This was at a time of extreme panic in tech stocks. Twenty years later it was trading at $180. If you had bought 1,000 shares of Amazon in 2001, it would have cost you $450. That investment would have been worth $178,000 twenty years later. That is a 400x investment. You would have increased your money 400 times. That is not a gain of 400% - it is a gain of 40,000% which is stupendous. Since its high in 2021, Amazon has come down and as of the time of writing this was trading at $114 per share which means it is almost 40% off its maximum highs. Does this mean that Amazon is cheap? Probably not. What you can say with 100% certainty is that it is considerably cheaper than 12 months ago and could get even cheaper in the weeks and months ahead.

Warren Buffett said the secret to success in financial markets is to buy when everyone is selling and sell when everyone is buying. This is contrarian behaviour and is difficult to implement because you need to override your natural fight-or-flight instincts. The bottom line is that you want to keep your head and not panic like the masses. Panicked markets like these present wonderful money-making opportunities.


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