In my last two blogs, I discussed how the world was not coming to an end.
I discussed how the stock market reacts by moving to the extreme up or the extreme down, depending on the current mood.
I discussed how the supposedly incomprehensible debt could be dealt with, and I gave the example of a country that did exactly that.
I discussed how the modern world has greater and greater demand for goods and services for the simple reason that there are more middle class people than ever before – and all are demanding goods and services.
How to Rebuild Your Portfolio
I have remarked that the stock market moves to extremes, and when it reaches extreme levels of distress, the average investor panics.
The Effect of This Panic
Some people do their own research and make their own investment decisions. When the stock market falls dramatically, these people often start questioning whether they should be making their own decisions and often sell the stocks they have.
Of more dramatic effect, is what the average investor who invests in Mutual Funds and ETF’s, or investing in Hedge Funds, feels. The panic of seeing one’s savings diminish, or see the massive losses than eating up your investments, causes a reaction.
The reaction is to salvage what is left – SELL. SELL. SELL. So the managers of the Mutual Funds, or ETF’s or Hedge Funds have to pay back the current value of the investment to their investors. These funds keep some cash on hand, but after that little bit of cash is disbursed, more cash has to be raised in order to redeem investor units.
The only place to raise cash, is to sell the Fund’s holdings. So more stock gets put out for sale in the Stock Market, and the prices get driven down some more. It is a vicious cycle.
How To React
At the point where everyone is panicking, and everyone is selling their investments for whatever they are able to realize, those sophisticated investors start entering the market.
There are such enormous bargains out there, it is like picking ripe fruit off the trees. Establish some basic principles, such as ensuring that the company has enough cash on hand to see them through this period, is one of the most important. Many companies today have more cash on hand than the total market value of all of the outstanding stock that their company has issued.
Stock Market Sayings
There are many famous saying that illustrate the point. These sayings have stood the test of time and over and over again they have proven to be the best wisdom. Following these sayings can REBUILD YOUR PORTFOLIO.
The Only Thing to Fear is Fear Itself. Franklin D. Roosevelt’s First Inaugural Address
Buy When There is Blood in the Streets Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family
Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.Warren Buffett
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.Winston Churchill
Enough said.
Be a Contrarian and make money from this downturn. The market will recover. It always has. It always will.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds
