Four Essential Tips to Survive Market PullbacksNovember 5, 2018
Too may of us overreact to corrections. We sell at the wrong time. We take our money out of the markets. But that’s the wrong move.
Instead, consider these four simple rules in pullbacks.
Tip No. 1 — Don’t panic.
If you panic, you sell. And if you sell, you miss the potential for the recovery rally. We have to remember that economists are still bullish on U.S. economic growth going forward.
Tip No. 2 – Consider buying the dip.
Wait to see where the market begins to show signs of catching support and recovering. Also, be sure to wait for signs of a higher move to avoid buying into head fakes. We also have to remember that the U.S. economy is still strong. GDP growth, unemployment, consumer spending, and tax reform could fuel higher highs.
Tip No. 3 – Do nothing and wait for the storm to blow over.
It may take some time for investors and traders to feel confident in buying again. If you’re most comfortable waiting for the possibility of a resumed rally, do so. It’s your money. Take your time. But remember, markets are resilient and can snap back quickly, too.
Tip No. 4 – Use Fear as a Billionaire Would
Sir John Templeton wasn’t your typical Wall Street money manager.
His Templeton Growth Fund averaged a 14.5% return for 38 years, crushing the major indices. Every $10,000 invested in that fund in 1954 was worth well over $7 million by 2005. Instead of relying on some brilliant forecasting model, he’d rely on extreme fear among investors that feared the very worst…
The best example was in 1939.
Europe was just about decimated. So, Templeton bought every European stock trading below $1.00 a share and made a fortune. In fact, he bought shares in 104 companies for about $10,400. Four years later, his account balance topped $40,000 even though 34 companies had gone bankrupt.
He was also among the first to invest in a post-war Japan.
As Japan grew to become the second largest economy, Templeton’s trades would make a small fortune.
To this day, Buffett advises that a “climate of fear is your friend when investing; a euphoric world is your enemy.” And of course, we all remember his advice to “be fearful when others are greedy and greedy when others are fearful.”
One of the greatest examples was his stake in shares of The Washington Post.
Shares may have plummeted in the bear market of 1973-74, but the billionaire still saw value, buying and watching his take explode more than 100 times over.
Or, when he bought shares of Coca-Cola (KO) when no one else would touch it.
Using fundamental analysis for example, Warren Buffett bough $1 billion worth of Coca-Cola (KO) in 1988, and made up to $12 million just 11 years later. His initial argument – in 1988, Coca-Cola wasn’t reflective of the growth set to occur in the company’s international business.
Investing legend Baron Rothschild once told investors, “The time to buy is when there’s blood in the streets, even if the blood is your own.” He knew that very well, considering he made a small fortune buying the panic that followed the Battle of Waterloo against Napoleon. In short, if you can embrace fear in times of max pessimism you can make a fortune, he’d tell you.