Investor Sentiment: Navigating Market Turbulence with Confidence

There will be a lot of investors here like:

3% drop: “buy the dip”

10% drop: “the best thing is to do nothing”

20% drop; “I’m getting out of this sh!t.....I’ll get back in when things have calmed down”

When your money starts to go down by 20% or more, and the news headlines being as bad as they are it can feel overwhelming. I’ve had one client sell the whole lot to make the pain go away. He wasn’t invested in suitable funds in the first place but it was impossible to convince him of this while markets were going up.

I recall investing in the dot com crash and being too young and inexperienced to know what to do or how to behave. Luckily I didn’t have enough money to lose a significant amount but I certainly would have lost a lot if I had it because I was invested in individual companies, a lot of them frothy and worthless.

8 years later I had a lot more money at stake when the global financial crisis hit. It’s easy to think that this situation feels worse now but 2008 felt like banks and supermarkets were going to stop working any minute. I knew by this time to do the counter intuitive thing and buy when there is maximum pessimism and outright fear....but I didn’t really feel like it. I felt like the investment would be worth less in a week so why waste money this week. I set a plan to buy anyway and indeed the money went down and it felt bad. It felt like I was throwing money away by following some crappy theory when instead I could have bought something useful. I wished I had no interest in investing. But I kept going anyway just deciding I might as well do the Warren Buffett thing and buy when there is blood on the streets, and I lost a lot of money......on paper.

When the market hit the bottom in March 2009, nobody knew it was the bottom. The headlines were still dire, job numbers were getting worse but the markets just stopped going down. There wasn’t really a catalyst for it to move back up except prices had become low enough that all the terrible news was baked in. It didn’t feel like there was investment opportunity. The markets had been down not just on a 1 year view, they were down on a 10 year view. At the best possible time to invest, convincing someone else to invest would have been impossible.

When I look back on the period i only wished I had invested more during maximum pessimism. Hindsight is 20/20 vision.

In 2008, when markets had shed 25% Warren Buffett wrote an article urging people to invest. I doubt many followed him because it felt like this, but if they did they would have lost another 25% in the next few months. However looking back on it now his advice would have gained around 230% for anyone crazy enough to listen to the best investor there has ever been. Right now Warren Buffett will be in buy mode. He’s got $130b of cash reserved for this sort of event. He won’t try to find the bottom of the market and he won’t care if the investment is worth less in a week or a month.

I know there will be a huge amount of people who will feel freaked out when markets are down 20% or more from their peak with dire headlines. I hope this helps some people to cope with the emotions you might feel and to help demonstrate that the text book stuff about the market working is even more valid at the point where it feels like a load of crap.