What happens when the stock market crashes? Time To Buy
Updated Jan 15, 2024
The Smart money backs the truck up and buys everything. Sol Palha
The Chess Master’s Perspective: The Stock Market Crash as a Strategic Move
When the stock market crashes, it’s akin to a grandmaster’s chess game. The board is in disarray, pieces are scattered, and the untrained eye may see only chaos. But the grandmaster sees an opportunity. They understand that the game is far from over. It’s just getting interesting.
Like the chess grandmaster, the smart money doesn’t panic when the market crashes. Instead, they see it as an opportunity to strategically position their pieces, buying undervalued stocks and waiting for the market to correct itself. This is not a reckless gamble but a calculated move based on understanding the markets’ cyclical nature and mass psychology principles.
Historically, the best time to buy has often been during extreme fear and panic. For instance, during the financial crisis of 2008, the election of Donald Trump, and the COVID crash of 2020, those who dared to buy when others were selling reaped significant rewards.
Beware of Fear-Mongers and Predictions of Market Crashes
Throughout history, there have always been individuals who confidently predict market crashes. These self-proclaimed experts often overlook periods of growth, yet they assert to know precisely when the market will collapse. This paradox often goes unnoticed by the masses, leading to unnecessary panic and hasty decision-making.
These fear-mongers are akin to a broken clock, which is right twice a day. While they occasionally make accurate predictions, their advice can cause significant harm if followed blindly. Their predictions can lead to panic selling, exacerbating a market downturn and substantial investor losses.
A classic example is the 1929 stock market crash, where overconfidence led to an asset bubble, and the subsequent crash led to the Great Depression. Many investors, driven by fear and the belief that “this time it’s different,” lost significant amounts of money.
Instead of listening to these fear-mongers, it’s more beneficial to understand the cyclical nature of the market and the emotions driving it. Markets have always experienced periods of growth and decline. Recognizing this can help investors make more informed decisions and avoid falling into the trap of panic selling during market downturns.
In conclusion, it’s crucial to approach market trends with a balanced perspective, understanding that markets will have ups and downs. Instead of succumbing to fear, investors should focus on understanding market cycles and making informed decisions based on their financial goals and risk tolerance.
The Contrarian’s View: Embrace Opportunity or Face a Slap
From a contrarian perspective, a stock market crash should not induce panic but instead be seen as a buying opportunity. This is based on the simple principle of buying when others are selling and selling when others are buying. While seemingly counterintuitive, this strategy can significantly reduce the risk of failure.
To further refine this strategy, one can study the principles of mass psychology. Understanding the emotions driving the market can help identify market tops and bottoms. This knowledge and a contrarian approach can provide a significant edge in navigating market crashes.
A stock market crash, while initially appearing as a disaster, can be a golden opportunity for those who understand the market’s cyclical nature and the principles of mass psychology. So, the next time the market crashes, remember to stay calm, think strategically, and seize the opportunity.
Echoes of Financial Doom: Naysayers and the Symphony of Market Crashes
Embark on a journey through history, tracing back to the Tulip Bubble, and a striking pattern emerges—a recurring narrative of self-proclaimed experts foretelling imminent market crashes. Strangely, these pundits, once oblivious to the timing of market upswings, now assert an uncanny foresight into the inevitable collapse of the stock market. Within their doomsday predictions lies a subtle yet crucial revelation often overlooked by the masses: following these dubious figures could have led to financial ruin multiple times.
Consider this: even a broken clock can be right twice daily, depending on whether you follow standard or military time. Thus, if these experts happen to make accurate predictions eventually, their flawed advice would have already wreaked havoc long before any semblance of accuracy emerged. It’s a cautionary tale urging us to navigate the financial landscape with discernment, steering clear of the sirens of doom which may lead us astray.
Next, take time to master the basic principles of mass psychology, which, if utilised correctly, will enable you to fine-tune your ability to spot market-topping and bottoming action. Lastly, take a look at Plato’s allegory of the cave. It provides some startling information on the inner workings of the mass mindset.
Market Temperatures Rising: No Cause for Alarm Yet, But a Cool-Down May Be Due
The market is currently experiencing an upswing in bullish sentiment, reflecting growing positivity among investors. However, it’s worth noting that this surge follows a prolonged period of relatively low bullish sentiment that lasted for over 18 months, only starting to normalize in early 2023.
Historically, the average bullish sentiment has hovered around 38.5. For nearly 19 months before 2023, the sentiment traded below this average. Thus, the recent rise in bullish sentiment doesn’t necessarily indicate mass euphoria among investors. For that to happen, we would need to consistently see sentiment surge into the 60 range for several weeks. As of now, in 2024, this hasn’t happened yet.
When we talk about a “sharp pullback,” we’re referring to a significant but temporary decline in market prices. For instance, if the S&P 500 were to lose 500 points from its highest value, that would be considered a relatively sharp pullback—though not a market crash. If such a pullback occurs, investing in lower-priced solid stocks could present an opportunity.
Therefore, while the market may seem heated, we aren’t in a mass euphoria. Even though it’s trading in an overbought zone, the market might need to release some built-up pressure or “let out some steam” before it’s ready to continue its upward trend.
Once the bullish sentiment consistently crosses over 60 for several weeks, we might need a more substantial market correction before we can comfortably commit new funds to the market. The highest the bullish sentiment has reached is 56, which was only for one week before it retreated.
In simpler terms, the market is like a pressure cooker that’s getting a bit too hot. It’s not time to panic, but we might need to let it cool down before we can comfortably continue cooking.
A Lesson in Patience: The Sriracha Shortage and the Folly of Market Frenzy
One of the most fascinating examples of market dynamics in play is the ongoing scarcity of Sriracha hot chilli sauce. This fiery condiment, often called “rooster sauce” due to its iconic packaging, has been in short supply for over a year. But what does the scarcity of a beloved hot sauce have to do with market principles? Quite a lot, as it turns out.
The Sriracha shortage has led to an extraordinary surge in prices. A bottle that generally retails for around $3 has skyrocketed to over $70 on the secondary market. The ongoing Sriracha hot chilli sauce shortage offers a valuable lesson in market dynamics and the potential pitfalls of impulsive buying behaviours. The most remarkable aspect was the consumers’ willingness to pay these inflated prices.
For those who paid a small fortune for a bottle of hot sauce, the immediate satisfaction of acquiring the much-loved Sriracha might have been overshadowed by the subsequent realization of their impulsive spending. Had they waited longer, the supply would likely have normalized, and prices would have dropped back to more reasonable levels.
This situation illustrates a principle of mass psychology, often observed in investment behaviour: the tendency to chase an asset when the masses are all vying for it. This herd mentality can lead to inflated prices and risky investments. In the case of Sriracha, consumers who paid excessively high prices made a poor investment. The money they spent could have been put to better use or saved for when the market returned to normal.
The Sriracha shortage teaches us the importance of patience and prudent decision-making in any market situation, whether it’s the stock market or the hot sauce aisle. It reminds us that falling into a buying frenzy driven by scarcity can lead to regrettable decisions. So, next time you see people clamouring for a scarce commodity, remember the Sriracha lesson: sometimes, it’s wiser to step back, wait, and avoid getting burned.
The Chess Master’s Perspective: The Danger of Misclassifying Desires as Needs
A player must discern between essential and optional moves in the strategic chess game. This principle mirrors the importance of distinguishing between market wants and needs. Often, we fall into the trap of confusing our desires with necessities, leading to impulsive spending and investing decisions.
Consider the recent hype around Artificial Intelligence (AI). The widespread belief that AI will revolutionize the world has led many to invest without considering the price, confident that the value will continue to rise. This behaviour mirrors the infamous tulip mania, one of the first recorded market bubbles, where people paid exorbitant prices for tulip bulbs, driven by the mistaken belief that the demand and prices would perpetually increase.
This mindset, where desires are misclassified as needs, can lead to reckless financial decisions. It’s akin to a chess player making unnecessary moves, driven by the desire to win quickly rather than strategically planning for long-term success.
In both chess and investing, patience and strategic thinking are essential. Just as a chess master carefully plans each move, considering both the current state of the board and future possibilities, investors should carefully consider their financial decisions, distinguishing between their wants and needs and resisting the urge to follow the crowd.
So, the next time you’re tempted to make a hasty investment decision, remember the chess master’s perspective: not every move is necessary, and not every market trend needs to follow.
The Peril of the ‘It’s Different This Time’ Mentality in Market Trends
The “it’s different this time” theory is a common mindset that often precedes market crashes. This perspective tends to amplify feelings of euphoria during market upswings, leading to intense fear and panic when the market inevitably takes a downturn.
While it’s true that each market cycle has its unique characteristics, it’s also important to remember that history, while not repeating exactly, often rhymes. This means patterns observed in past market cycles can often provide valuable insights into future market behaviour.
Take the AI sector, for example. Given the hype around AI, it’s easy to fall into the “it’s different this time” trap and believe that the sector’s value will only continue to rise. However, if we look at historical market trends, the AI sector could likely experience a sharp drop when the market corrects.
On the other hand, cyclical stocks and critical commodities, historically resilient during market downturns, may experience what’s known as ‘higher lows’ during the subsequent market correction. This means that while these sectors may still see a decrease in value, the drop might not be as severe as in other sectors.
Moving forward, we’ll delve into historical records for valuable insights. When paired with current events, these historical perspectives offer investors actionable information to leverage, enabling them to capitalize on opportunities and boost their financial gains.
What Happens When the Stock Market Crashes Update Aug 2020
The video below illustrates what happens: the masses panic and dump everything, Tactical Investors jump in and buy, and the sorrowful story of misery and suffering continues. The masses never learn they talk big, but when the time to act comes, they chicken out and flee for the hills. Look at how we reacted during that time frame.
Shortly after this stampede, the markets bottomed. Mass psychology in real-time. We hope your chaps kept a trading journal as suggested, for this crash will be remembered as one of the biggest B.S crashes of all times. Or if we put in terms of Aesop’s fables. This is a turbocharged version of the boy that cried wolf one too many times. Market Update May 2, 2020
The Crowd begs for a Market Opportunity, and when it comes……
They panic, stating that it would make more sense to wait for a better price. When the better price arrives, they say well, things don’t look so good, right now because so and so is saying this and the other brain surgeon is saying that. Let’s just wait for the dust to settle, and the only thing that settles in the dust is the poor chap who kept waiting for a better opportunity. Opportunity knocks rarely, and it does not take kindly to being ignored.
This is the one reason the masses are destined to repeat history forever and ever Amen. Nothing will ever change; the equation must balance. For the few to win, many must lose; you are welcome to try to alter that equation. No one can change you; only you can change the way you think or act. Counsel with the wisest of men and women is not going to help shape a silly man or woman who has decided that he/she knows what’s best without even studying oneself and the mass mindset. Market Update May 14, 2020
The COVID-19 market crash wasn’t a catastrophe but a rare chance for investors.
Market trends are never a straightforward climb; they meander, creating opportunities. While panic spread among the masses, Tactical Investors seized the moment, backing the truck and loading up on top-quality shares. As the markets release some pressure, the usual overreactions from the masses ensue.
To change the outcome, you must break away from the herd mentality. If you follow the crowd, every day feels like Groundhog Day, with no real change. Shifting your perspective is the key; start seeing market crashes as buying opportunities.
We’ve shared numerous articles emphasizing that crashes should be embraced, not feared. If you’re intrigued, visit our website and search for “crash” or “stock market crash” to discover a wealth of insights on this perspective shift. It’s time to redefine how we perceive market downturns and transform them into avenues for growth.
The masses are still in disarray; regardless of the intensity, every pullback should be embraced like a lost love. Buy the fear and sell the joy; that’s the perfect recipe for long-term financial success in the markets.
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