When is the best time to invest in stocks? Amidst the Storm of Panic

When is the best time to invest in stocks

Deciphering the Dilemma: When is the Best Time to Invest in Stocks?

Updated March 7, 2024

Hint: When the Masses Are Scared

Few principles are as counterintuitive yet profoundly powerful in investing as the art of contrarian thinking, for it is when fear and panic grip the masses that genuine opportunities arise, like diamonds forged in the crucible of adversity.

As the legendary Jesse Livermore once proclaimed, “Wall Street never changes, the pockets change, the suckers change, the lies never change.” These words encapsulate the essence of mass psychology, the herd mentality that drives the market’s ebbs and flows, fueled by the emotions that the astute investor must learn to transcend

For it is in the depths of despair, when the masses have abandoned all hope, that the contrarian investor finds their greatest strength. As the great Sir John Templeton once observed, “The four most expensive words in the English language are ‘This time it’s different.'” **And indeed, history has shown time and again that the cycles of boom and bust, euphoria and despair, are as immutable as the tides, governed by the inexorable laws of human nature.**

The true masters of the market, those whose names echo through the ages, have all embraced the contrarian mindset. Benjamin Graham, the father of value investing, sought out those companies whose intrinsic worth had been obscured by the fog of fear and uncertainty, acquiring them at a discount to their true value. **In his footsteps followed the likes of Warren Buffett, Peter Lynch, and countless others, all united in their unwavering belief that the path to riches lies not in following the herd but in charting one’s own course, guided by the twin beacons of reason and discipline.**

Yet, to truly master the art of contrarian investing, one must delve deeper into mass psychology, exploring the forces that drive the market’s ebb and flow. In the study of these dynamics, the astute investor finds the keys to unlocking the true potential of their contrarian strategies.

The Cycle of Emotion

At the heart of mass psychology lies the cycle of emotion, a perpetual dance between fear and greed, despair and euphoria. As markets rise, fueled by the optimism of the masses, a sense of invincibility takes hold, driving valuations ever higher until the inevitable correction occurs, shattering the illusion and plunging the herd into the depths of despair.

In these moments of extreme sentiment, when the masses have abandoned all reason, the contrarian investor strikes. For it is in the ashes of despair that the seeds of opportunity take root, waiting to be nurtured by the patient hand of the disciplined investor.

The Power of Patience

But to truly reap the rewards of contrarian investing, one must possess unwavering patience, a willingness to endure the taunts and jeers of the crowd and be secure in the knowledge that their conviction will ultimately be vindicated. The great David Dreman, author of “Contrarian Investment Strategies: The Next Generation,” once observed, “Investors overreact to news developments and overprice ‘hot’ stocks and underestimate the earnings of distressed stocks.”

It is this overreaction, this collective myopia, that creates the very opportunities that the contrarian investor seeks to exploit. By maintaining a steadfast focus on the fundamentals, the intrinsic value that lies beneath the surface, the contrarian investor can acquire assets at a discount, secure in the knowledge that the market’s pendulum will inevitably swing back, rewarding their patience and fortitude.

 

Now, let’s scrutinize the situation through the lens of history, as those who neglect to learn from the past are destined to endure its harsh lessons again.

Let’s start with a bit of history. The chart below illustrates quite clearly when astute investors begin to buy stocks.

4

If you purchased stocks between Sept 2008 and March 2009, you would be sitting on a fortune today. If one had repurchased in Sept of 2008, one would have had to deal with significant volatility. However, the astute investor always deploys capital in equal lots and never deploys it in one shot.

Take a look at the chart below

Don't focus on Which stocks to buy now but pay attention to market conditions first 

Timing the Market: Unveiling the Optimal Moment for Stock Investments:

Amidst all the chatter surrounding the 1987 crash, it is often overlooked that it presented one of the most exceptional buying opportunities ever. When markets experience a sharp pullback or crash, fear and panic can lead investors to sell off even high-quality stocks at rock-bottom prices hastily. However, for those who remain level-headed and astute, this can be a once-in-a-lifetime opportunity to buy into the market. Of course, it’s not always easy to take advantage of such opportunities, as, at the moment, it can feel like the market will never recover. Let the market come to you; never chase it.

 

COVID Crisis: Another Stupendous Opportunity.

Undoubtedly, we are experiencing one of the most challenging times since the financial crisis in 2008, and many are wondering when the best time to invest in stocks is.

Hysteria has gripped everyone, especially in the U.S., and it’s feeding on itself as everyone from the top of the rung to the bottom is running around like headless chickens. Before we continue, we will not distort the truth or makeup stories; in the short term, we have taken a beating, and it’s a bloodbath out there.

After witnessing several crashes, we have never seen such a situation, which presents an opportunity for investors. Everyone at the Tactical Investor is freeing up all the available cash they can, and when the panic subsides, it will create a feeding frenzy like we have never seen before.

When you combine zero rates, two trillion dollar injections by the Feds, and several more billion-dollar packages designed to stimulate the economy, the result will be a market melting upwards. The markets will be driven to unimaginable heights by today’s standards, and those who invest wisely will reap the benefits. Zero rates will also force many individuals on a fixed income to speculate, and these guys have a lot of cash sitting on the sidelines.

Buy when the insiders are loading up.

The best answer to this question is: When is the best time to invest in stocks?   It is when the insiders buy hand over fist.

Strategic Insights: Deciphering the Best Time to Invest in Stocks

The chart above speaks for itself – insider buying has historically been a strong indicator of long-term stock performance. Currently, the sell-to-buy ratio is at a low not seen in a while, indicating that insiders are not just buying shares but devouring them. While insiders may be unable to time the absolute bottom of a market downturn, their purchases reflect their confidence in a company’s long-term outlook.

Looking back at the financial crisis of 2008, we see a similar pattern of insider buying. In October of 2008 and again in 2009, insider buying spiked just before the market bottomed in March 2009. This led to an 11-year bull run with some bumps along the way, but overall, insiders who bought during the crisis reaped significant profits.

Although the short-term outlook may be unpredictable due to current market hysteria, historical data spanning over a century indicates a bullish outcome in the long term. As Winston Churchill famously said, “Never waste a good crisis.” During times of crisis, top-notch stocks can be purchased at a discount, offering the potential for spectacular gains.

Sir John Templeton to the Rescue 

To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit. Bull markets are born in pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. If you want to have a better performance than the crowd, you must do things differently from the crowd.

The current readings indicate that insiders are not just buying shares, but they are devouring them, as shown by Vickers’ benchmark NYSE/ASE One-Week Sell/Buy Ratio of 0.33 and the Total one-week reading of 0.35, based on very heavy transaction volume. This behaviour is similar to what we observed in late December 2018, early 2016, and late 2008/early 2009, which were all spectacular times to buy stocks. The insiders’ actions seem to be sending a clear message that the current situation offers a similar opportunity for investors..  https://yhoo.it/2TV0cE2

According To The Naysayers: It’s always raining.

The naysayers can talk all they want about supply lines being backed up for months or other scenarios that they pull out of their rears. However, the best time to invest in stocks is when the markets discount all the bad news. Furthermore, these experts are severely downplaying the role of technology. Suddenly, many businesses will see that many personnel can be replaced with AI-based technology without interrupting the flow of goods. Replacing them will improve efficiency on a colossal scale.

Once the markets discount all the bad news, this massive mountain of money will flood the system, making the Bull Run from 2009 look like Child’s Play. The amount of money the Fed has already thrown into this market makes 2008 look like a stroll in the park. Officially, we think they will throw north of $5 trillion; unofficially, the figure could end up being north of $10 trillion.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Sunday night on CBS’s “60 Minutes” that “there is an infinite amount of cash in the Federal Reserve. We will do whatever we need to do to make sure there’s enough cash in the banking system.” https://yhoo.it/2JdtRlH

And there you have it, a tacit acknowledgement that forever Q.E. is real and here to stay. When the Fed states it will do whatever it takes, you better believe this statement.

Don’t Fight The Fed: Regardless of the expert’s state, one should never fight the Fed, for you will end up dead. Dead as in dead broke.

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