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Friday, October 10, 2008

What to do in a Bear Market

With the way the market has been acting lately, it seems like everyone is freaking out. Times are tough, there is absolutely no denying it. It almost feels like everything is playing out like it would in a movie. I keep waiting to hear Potter let us know he'll give us fifty cents on the dollar for every share we're willing to give him.

'I may be set to lose a fortune, but I'm willing to guarantee your people too.'

During (what was implied to be) the Great Depression in It's A Wonderful Life, Potter wasn't selling, Potter was buying. And later in the movie, it's declared that Potter made a fortune.
In real life, there are many examples of people taking a down market and turning it into their advantage.

Warren Buffett didn't buy Coca-Cola when the market valued it at its highest, he bought it after the release of "New Coke", when everyone thought the company would fail. He bought $3 billion worth of GE Common Stock on October 2, and $5 billion in Goldman Sachs on September 24. While the last two deals have yet to turn a profit, given Buffett's historical performance, I wouldn't bet against him.

John Templeton bought hundreds of Shares of undervalued stocks in 1939, eventually becoming a billionaire through his investments.

In January 1907, the stock market fell 50% from it's previous year's high (sound familiar?). In this instance JP Morgan (and other bankers) helped infuse $23 million into the New York Stock Exchange to help it avoid closure. Five days later JP Morgan (this time on his own) purchased ~$30 million in Bonds from the City of New York. Without these cash infusions, New York City would have been insolvent and the NYSE would have closed early. Don't worry about JP Morgan though, he made more than a few dollars on the deal.

What can we learn from these investors? Panic and you lose money. Think calmly and you will end up ahead.


Anonymous Kaaveh said...

Hey, butt updates?

February 19, 2009 at 7:26 AM  

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