Markets are Down, So Go Shopping
Updated: May 28, 2022
The decline in the markets have created buying opportunities in stocks.
Investors have been conditioned to avoid markets when stocks are cheap.
Over the long term buying the dip has proven to be an effective money maker for investors.
Are you scared? Then buy some stock. Are you worried about the future of the economy? Great, buy some stock. If watching CNBC makes you worry about your retirement, so what, buy some stock. Buying the dip has worked for millionaires and billionaires in the past, and it will work for you to.
Investing when asset prices are dropping, seems counterintuitive, because we’ve been wired to think in a way that’s not conducive to wealth building. When it comes to investing and investments, we’re wired to be sad when asset prices decrease, not interested when asset prices trade in a range, and extremely excited when asset prices increase. These emotions make sense when we already own the asset. It’s sad to see an asset we own decline, and it’s exciting to experience that asset’s value increase in price. But the best investors and traders are the ones who keep their emotions in check and make investments and trades based on logic, and not emotions.
Here’s the logic. The history of the markets is one big up trend. Pull up the Dow Jones Industrial Average or the S&P 500 over the last 50 years. Put your left index finger on the chart at the place where the chart intersects with your year of birth, then place your right finger on where the markets are now. If you’re old enough to read and understand this exercise, then your right index finger is above your left index finger. The market’s movement in-between fingers isn’t a solid diagonal line that veers up and to the right, there are bumps, dips, and craters in-between when you were born and where the markets are now, but still, the right index finger is higher.
Most of us understand the concept of a sale, but it seems difficult for us to transfer that to assets. 30% off on an iPhone, and people are in and ready to buy, 30% off the value of Apple’s stock, and we want to wait until the stock moves up or breaks an old high before considering it. How did we learn to value a sale of immaterial items, but not the sale of an asset. Same thing for real estate. Why does a sale at Target get us excited, while the discounts the stock market offers bring us down?
In late 2017 Bitcoin hit $20,000 for the first time ever. As prices for Bitcoin started rising in May of 2017, the upward price movement attracted lots of attention. People who knew very little about cryptography became crypto experts, people who never thought about investing wanted to know how to buy Bitcoin. One person in Miami put a condo on sale, and would only accept Bitcoin as payment. As the price of Bitcoin kept rising, it attracted more people to buy at the new all time highs of that time. Then November 2017 happened. After briefly trading to $20,000, bitcoin sellers would overwhelm the buyers, causing the price of Bitcoin to crash. Bitcoin would keep declining over most of 2018 and enter 2019 trading at under $4,000.
Bitcoin started 2017 trading for under $1,000, but there was no hype outside of the small population of very early HODLers. What I saw in 2017, were investors who were terrified to buy Bitcoin at $900, put everything they could put into Bitcoin when it hit $14,000. It's another time when the people misread the hype surrounding an investment as a buy signal.
Markets are falling now, and the right thing to do is to get prepared to invest, even though you won’t be applauded by investment media for investing when things are bad and the possibility of losing money over the short term is high. There’s no getting around that last part. You could invest today, only to watch the price of the asset you’ve invested in decline even more, but this is when thinking long-term comes into play.
Tuning into CNBC, Bloomberg, or Fox Business on a day when the markets are down big, will make you want to take your cash and put it under the mattress. There’s a lot of doom and gloom on TV. The professional investors that make appearances on the networks during big down days will discuss their strategies and how they are navigating the down markets. But after hearing five different hedge fund managers, explain five different strategies, for five different outlooks, it's easy to ignore it all and just leave your money under the mattress.
Most of my investment regrets come from not investing more in down markets. In 2008 and 2009, stocks suffered big declines while the world dealt with the blow up of the housing market. Amazon, Google, Priceline, Apple, were a few companies that were trading at deep discounts. Instead of investing heavily, I saved heavily. The Great Recession turned me from an active market participant into a spectator. Seeing some of my friends lose their jobs and fearful that I could lose my job during the Great Recession, I clung to every dollar.
In 2009, Amazon had shed 64% of its value from its 2007 all-time high, Priceline.com lost 62% of its value from its 2008 high, Apple was down 60% from its high in 2007, and Google was off its 2007 high by more than 60%. My level of investment analysis in 2009 may not have been anywhere close to that of Warren Buffett’s or Peter Lynch’s, but I knew, Amazon, Priceline, Apple, and Google would make it to the other side of the recession, and they did.
America moved past the Great Recession, on the back of several big movements within tech. Mass adoption of the smartphone, the move from desktop to mobile as the primary way to interact online, cloud computing, and digital streaming were just a few areas within tech that helped propel markets upward after the Great Recession. And in getting past the Great Recession the rich got richer, because they had the money to bet on America getting past one of the biggest financial crises in the country's history. Don’t be me in ’08 and ’09. I was paralyzed by fear created by all of the negative financial news coming out at the time. I missed several great deals of the time, because I failed to look past what was happening in the moment.
The financial news is negative right now, so are many of the headlines. On days like last Thursday, when the Dow declined 856 points, and the 401K value went in the wrong direction, it’s difficult to think about the future. But investing now, buying when others are fearful could be the difference between a good retirement and a great retirement. Assets are on sale, go shopping my friend.