Coronavirus panic selling, blood in the streets, and potentially once-in-a-lifetime value…
The Covid-19 Coronavirus outbreak has this week plunged the world into a full-blown pandemic.
Nations, governments, economies and businesses have entered crisis mode.
Here in Australia, Qantas has slashed 90% of its international routes.
Border restrictions are now in place.
But, most shocking for investors…
Australian shares are down around 30% in less than a month.
That’s about four years of stock market gains wiped out in the space of just a few weeks.
Twelve years since the global credit crisis of 2008 drove the ASX200 down more than 50%, we find ourselves in the midst of a full-blown stock market panic.
On Monday, March 16, marks the markets biggest one-day fall since 1987.
The catalyst is obviously different from the last time investors faced such panic and losses.
But the net result is — and will probably continue to be — dramatic and severe.
In this post, we’re going to analyze what the crash could mean for the market — and how certain investors turn conditions like these into opportunities.
This Market Crash Could Be A ‘Blood In The Streets’ Moment
“The time to buy is when there’s blood in the streets.”— Baron Rothschild
Eighteenth century British nobleman, Baron Rothschild, often gets quoted when we talk about market crashes.
He made a fortune buying in the crash that followed the Battle of Waterloo.
Because he didn’t allow the market’s fear to prevent him from seizing the opportunity to buy good assets for dirt cheap prices.
Not that Rothschild didn’t take some pain himself during the crash.
The full quote is allegedly:
“Buy when there’s blood in the streets, even if the blood is your own.”
That’s contrarian investing in a nutshell.
When everyone is selling and freaking out, you go the other way, buying shares others can’t wait to wash their hands of.
Trying to pick the exact market bottom is generally about as treacherous as trying to catch a falling knife.
If you’re buying right now, chances are you will take some pain before you see the fruits of brave contrarian buying.
But, if you were eyeing up a stock last month and you reckoned it was undervalued…
Then how much more undervalued might it be now in light of the panic selling taking hold of the market?
Stock Market Fortunes Have
Been Made In Times Like These
“Investors do get paid for stepping in and buying in times of turmoil.”— Barron’s
The Dow Jones Industrial Average has only fallen more than 10% in a week 17 times.
That’s less than 0.3% of the time stocks have been trading on it.
So moments like these are, in the grand scheme, few and far between.
And in the past, savvy investors who’ve kept their heads and not allowed the market panic to dominate their decision making have used times like these to sow the seeds for huge gains.
In 1973 and 1974, an oil crisis, combined with the ‘Nixon Shock’ economic measures and the collapse of the Bretton Woods system triggered a 45% stock market crash.
The Washington Post Company was among the victims.
At the worst point, the company had a market cap of just $80 million.
But while most investors bailed on the company amid the panic, wily old Warren Buffet swooped in.
Buying shares at a deep discount, Buffett pulled of a ‘blood in the streets’ masterstroke.
The investment recovered and went on to rise to more than 100 times what Buffett paid.
Here’s another example.
The September 11 attacks in New York hit airlines particularly hard.
Not many people would have bought Boeing stock at that time.
The company’s stock price bottomed about a year later…
And then went on to rise more than four times in value in the following half a decade.
If you’d bought an ASX200 index fund in December 2008 — right when pessimism was peaking and the selling was most brutal — you would have copped a rough few months as prices plummeted even further.
As the recovery kicked in and investors began flooding back into the market…
You could have made a 40% gain over the next five years, or a 60% gain over the next 10.
What we’re getting at here, is that in situations like this one, it can pay to…
Keep Calm & Carry On Investing
“Be greedy when others are fearful.”— Warren Buffett
We’re not claiming to know any more than the next analyst, blogger or investor about how this Covid-19 led market panic is going to play out.
But, looking at history, you can see that this is not the first time we’ve gone through a rapid market selloff that has seemed to come from nowhere.
The reality is probably that this current crash could get a lot worse before it gets better.
It’s also probably true that in the weeks and months to come, there will be opportunities.
Those who can take some pain and buy when there’s blood in the streets could stand to make great gains on investments that are trading at incredibly low valuations.
Our two cents?
Try not to let emotion hijack your decision making.
Keep an eye on the big picture — and don’t be afraid to buy when there’s blood in the streets.