Opportunities in Crisis
危机
When the market is desolate – everyone has lost money on everything. We are so consumed by mental anguish that it is difficult to make rational decisions. The future is seems so bleak and every piece of news added to your agony.
Nevertheless, the financial future is no more uncertain now than it used to be; in fact, it is far less uncertain than when the market was at its peak, the future seemed bright, and no one even imagine the disaster that would befall the market. Now, we realised the absolute certainty of blue skies ahead then was an illusion. But all we now is the feeling and fear that worse misery may lies in store. At this point of time, we may not be aware that this notion is also most likely to be an illusion.
With the market is plunging and the everyone is panicking, the easiest thing is to join in the mass exodus. Many stress-out investors liquidated their whole portfolios in March of 2009, just as equities bottomed out.
Investors who are stampeded by the market panic is “perversely transforming his basic advantage into a basic disadvantage.” How is this so?
Market fluctuate. Though the price may change every seconds and minutes but the value should remain the same unless the fundamental changes. Why suffer mental anguish over something which we have no control. We, however, can control how we respond to it.
雨过天青
Yes, it is absolutely terrifying to be in the midst of a market crisis. However we cannot based on fear to make rational decisions. So when opting between following your emotions or investment plan, stick with your plan. Panic will not last forever, the crisis will eventually tail off. This one will too. All crisis will passed as the history of markets showed for the past 200 years - Markets do recover. When in a market crisis, think "This too shall pass."
Do not panic. Do not sell off - this is where most investors made the serious mistake of selling low and buying high. Selling will cause you irrevocable loss. As Elis put in, "Flight to safety is like locking the barn door after the sheep had run off." You are unlikely to buy back until the market has risen and regret will cause you to buy near the market peak - what Jason Zweig, call the Sheepish Bulls.
機不可失
Buffet said: When other fear, we are greedy. When others are greedy we are fearful. We invert our emotions. Market Crisis offers us the best opportunity to buy good stocks at wonderful prices. History has shown that best money were earned by the people who stepped up and bought stocks and kept buying on the way down during market crisis. Those who fled stocks for the safety of bonds and cash suffered. As it is popularly known - buy when there is blood in the street; even if the blood is yours.
So see Market Crisis as an opportunity and an advantage. Though Bear markets may be gut-wrenching, they are the only means by which future returns can be raised.
Look at Market Crisis like disruptions in life ie floods, electrical failure, or earthquake. People are unable to continue their normal life and suffer a lot of inconveniences. But things will return to normal with some changes and life continue. As an investor, your investment also go through raining day and sunshine.
Adopt an outlook of imperturbability - as long term value investor, prices in the short terms does not matter to us. . If you have to know what your investments are every day, you're making a mistake. Look at it as trying to shake us off from our beliefs ground in history and facts. Avoid investment pornography will prevent us from joining the market irrationality.
References:
This Too Shall Pass
Markets do recover
At the end, the bear will be replaced by the bull
After the Crash Stocks May Face Long Road Back
Jason Zweig.
February 26, 2009.
http://online.wsj.com/article/SB123561056456077505.html
Abraham Lincoln liked to tell the story of a king who ordered his wise men to come up with a single sentence that would never be false. Their solution, which Lincoln called both "chastening" and "consoling," covered all possible contingencies:
"And this, too, shall pass away."
Avoid Permanent Irrevocable Losses
Flight to safety is like locking the barn door after the sheep had run off.
Ellis, D. C. (2010). Winning The Loser's Game. McGraw Hill. Pg 161
The Madoff and Iceland experiences are both different from the global market meltdown in one profound way – their loses were permanent; gone forever
Markets, on the other hand, do recover. The great risk to investors is not the market can plummet but that investor may be frightened into liquidating investment at or near bottom and miss all the recovery; making the loss permanent.
Flight to safety is like locking the barn door after the sheep had run off.
Do not focus on the day to day and even hours to hours ups and down of stock prices. Most of the changes in share prices are just noise, almost random fluctuations to distract you.
Invert Our Emotion
See Benefits From The "Advantages" Of A Long Bear Market.
If You Think Worst Is Over, Take Benjamin Graham's Advice
Jason Zweig
May 26, 2009.
In the depths of that crash, near the end of 1974, Mr. Graham gave a speech in which he correctly forecast a period of "many years" in which "stock prices may languish."
Then he startled his listeners by pointing out this was good news, not bad: "The true investor would be pleased, rather than discouraged, at the prospect of investing his new savings on very satisfactory terms." Mr. Graham added a more startling note: Investors would be "enviably fortunate" to benefit from the "advantages" of a long bear market.
Invert Our Emotion – See It As An Opportunity, Not A Threat
Lessons And Ideas From Benjamin Graham
Jason Zweig
2004
On fear of the investors during a market decline
Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused by other persons’ mistakes of judgment.
Best Investment Returns Earned With Purchases During Market Crisis
Better Chance now to make money than ever before.
Best Result were earned by those who buy and not fled stocks
For Investors Dealing With a Loss of Control
Jason Zweig
October 7, 2008
As an investor, however, it's absolutely vital to separate what you can truly control from what is beyond your control. The only thing you can know for sure is that stocks are steadily getting cheaper. You cannot control whether or not the market will continue to trash stocks, but you can control how you respond.
Even during the Great Depression, the best investment results were earned not by the people who fled stocks for the safety of bonds and cash, but by those who stepped up and bought stocks and kept buying on the way down. A man named Floyd Odlum made millions of dollars putting his cash into battered stocks. His motto throughout the market nightmare of 1929 to 1932 never changed: "There's a better chance to make money now than ever before."
Cheaper Stocks, Less Risks
Can the Dow Go Lower? I Hope So
Jason Zweig
November 20, 2008,
Inverted Form Of Optimism
Let’s get this straight, folks. I’m not an optimist or a bull, at least not the way most investors usually use those terms. I would not be a bit surprised if the stock market fell another 20% or so from here. But stocks are already on sale – and further markdowns are good news, not bad, for anyone who is not retired or about to be. Since most of us have many years of saving and investing ahead of us, it is in our best interests for the fire sale to last longer and for the discounts to get deeper. As risky assets keep getting cheaper, we get to buy them at prices low enough to take most of the risk out of the equation
Contrarian Views
When others are fearful, we are greedy
How to Handle a Market Gone Mad
Jason Zweig
September 16, 2008.
Question authority. If the financial world really were coming to an end, nobody would know it -- least of all the pundits who are currently crying doom. In 1929, experts ranging from the legendary trader Jesse Livermore to John D. Rockefeller and Treasury Secretary Andrew Mellon all declared that falling stock prices were nothing to worry about. They were wrong. The lesson is not that it's a mistake to be an optimist in falling markets, but rather that it's a mistake to trust the consensus view of the experts.
Optimism Signals
How to Handle a Market Gone Mad
Jason Zweig
September 16, 2008.
With the mood on Wall Street now as dark as a mushroom farm, optimists are much more likely than pessimists to be proven right in the end.
Ataraxia Or Imperturbability
No need for the money in the short term
How to Handle a Market Gone Mad
Jason Zweig
September 16, 2008.
Scott Jaffa, a 25-year-old systems administrator in Silver Spring, Md., called yesterday's plunge "as much a test of my psychology as anything else." Because he does not need the money "for another 30 to 40 years," he asked rhetorically, "why should I worry myself about its performance over a period of days or weeks or even months?"
Mr. Jaffa is already developing what the ancient Stoics and the great Danish philosopher Søren Kierkegaard called ataraxia, or imperturbability. But he knows that ataraxia does not come naturally; it takes work. A year and a half ago, Mr. Jaffa destroyed the online access code for his 401(k) so he could no longer have instant access to his retirement accounts. His goal was to make it "significantly harder" and to require "human interaction" before he could trade on his own emotions. That enabled him to watch Monday's decline without acting on it.
Keep to Your Plan
First Rule in Panics: Don't Panic
Tradecraft
Jonathan Hoenig
August 11, 2011, 11:38 A.M.
http://www.smartmoney.com/invest/stocks/first-rule-in-panics-dont-panic-1313074389878/
When markets turn stormy, follow your trading plan -- not your emotions..
During unquestionably trying times, when the market is diving and the world is panicking, the easiest thing in the world to do is join in. Resist that urge.
Panic is drive by emotion, not reason, making it by definition a bad state of mind for decision-making. Yet with the headlines and markets so undeniably bleak, it's difficult to see even slightly beyond the next press conference or market plunge.
It's well documented that investors feel the pain of losses much more than the euphoria of gains. And with the market having lost 15% in just two weeks, many frightened investors are likely wondering why they own stocks at all. Why not dump your entire stock portfolio and go out for ice cream? That's exactly the kind of all-or-none fallacy we buy into in the midst of a panic. You'll recall many worried investors liquidating whole portfolios in March of 2009, just as equities bottomed out.
Rather than emotionally jump from being heavily exposed to hiding under the mattress, investors are better served by a sell discipline based on the positions in their portfolio, not headlines on TV. That means holding onto open, winning positions while eliminating low probability trades, exactly as you would in a "normal" market. To dump your entire portfolio simply because it feels safe is as reckless as binging on a candy store's worth of sugar. Long term, neither is in your rational self-interest.
Another bad move: Trying to catch a falling knife in what still appears to be a waterfall of cutlery. As we always point out, one need not buy at the bottom of a move in order to make money. But panic is painful, and where investors hang themselves is by fighting the tape with huge positions in an attempt to "get back" to even. …
In the midst of a storm, the lightning and thunder is downright terrifying. Yet fear can't be the basis on which we make decisions. When opting between following your emotions or your disciplined trading plan, stick with your plan. Panic can't go on forever, the storm eventually ends. This one will too.
Part and Parcel of Investment
Valuable lessons from the financial crisis
Interview with Charles Ellis and Jason Zweig –
Wealth Track
by CONSUELO MACK
April 18th, 2010
CHARLES ELLIS: Easy illustration. If you look at weather in this wonderful city, there are times when the weather is really hot, really cold, rains like the dickens, you should have seem that snowstorm. That's very disruptive. People cancel school and don't go to work, a lot of other things. But if you look at it in terms of climate, over a period of five years, nobody particularly minds the fact that once in a while it's a terrifically hot day or terrifically cold or there's a lot of snow. As an investor, if you have to know what your investments are every day, you're making a mistake. You should take some of your portfolio and put it into I know what it is, it's in short term or cash, I can get it whenever I need it and so I don't have to worry about the day-to-day or even month-to-month or year-to-year ups and downs of my long-term investing, which will stay there for 20 years, 30 years, 50 years..
The Financial Future Is No More Uncertain Now Than It Used To Be
The Depression of 2008? Don't Count on It
By Jason Zweig
The Intelligent Investor
September 30, 2008.
"Investors hate uncertainty." Well, that's just tough. Uncertainty is all investors ever have gotten, or ever will get, from the moment barley and sesame first began trading in ancient Mesopotamia to the last trade that will ever take place on Planet Earth.
If tomorrow were ever knowable with absolute certainty, who would take the other side of a trade today?
The financial future is no more uncertain now than it used to be; in fact, it's far less uncertain than it was in the summer of 2007, when the Dow shot above 14000, the future seemed bright, and utterly no one foresaw the disaster that would befall the financial system. The absolute certainty of blue skies ahead was an illusion then, and the notion that we all know that worse misery lies in store is an illusion now.
The only true certainty is surprise.
You've probably spent a lot more time worrying about negative than positive surprises lately. But we could get surprised on the upside by a further fall in oil prices, a kick from low interest rates -- and, of course, untold other possibilities that no one can foresee.
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