Though the term ‘crash’ is often associated with excessive pessimism, panic, fear and rampant selling, it must also be noted that only a crisis can provide the opportunity of buying shares of valuable businesses at cheap levels. During a crisis such as the 2008-recession, all asset classes undergo severe depreciation in their values and excessive pessimism takes over. It is times like these which attract the smartest investors such as The Oracle of Omaha, Mr. Warren Buffett, who put their immense faith and huge funds into the proven winners and reap tremendous rewards when the bear market gets over. So why can’t everybody else follow the same principle?
It is very true that there is neither a top in a bull market, nor a bottom in a bear market and the incessant selling instills fear in the heart that prevents us from investing in high-value stocks. The problem lies in the fact that most market participants hope to make quick and easy money even in the dangerously volatile times such as a crash. A crash should rather be seen as a great buying opportunity for long-term rather than an adversity to sell and sit out. It will require a substantial shift of mentality and enormous courage to not follow the crowd, but has the herd-mentality ever worked in this market? One must think about buying stocks as being part of the businesses which will revive when the mayhem gets over, as it definitely will. The stock markets are indeed, cycle-logical and severe ups and downs amid heightened volatility will always be there, but isn’t it all the more smart to buy stocks when they are highly undervalued rather than when they are actually very expensive? Bad times have often made for great buys and it goes without saying that if the market were to crash at this very instant, one must wait for all the other investors to get slaughtered and then enter the market to strike it rich. A famous old saying strengthens this viewpoint:
“Buy when there is blood in the streets.”
By: Nikhil Gupta, Financial markets Researcher/Analyst