By: Atul Sethi
Many markets have a cyclical nature to them – when fear is extreme, prices go down. A lot. When this happens, your favourite companies, coins, watches, and cars all go on sale. It’s easy to point out that those are the best buying moments. However, fear can lead to indecision, and the opportunity can pass you by. Write down your wishlist now and bring it out when panic ensues, and it will help you operate more objectively and can lead to better investment decisions.
Make an Investment Wishlist
Make a shopping list of assets that you want to buy when nobody else wants to touch them. Instead of giving it to Santa, keep it in your bedside drawer until the right time comes around. There is a cyclical nature to financial markets that has been demonstrated many times in history. When prices are set by humans, crowd behaviour results in extreme highs and lows.
In times of gloom, panic takes over many market participants. This leads to selling and can result in many quality assets going on sale, just like on Black Friday. However, there are two differences between this and a shopping sale:
1. You have no idea when the price will crash, and by how much
2. When it happens, most of the people around you will be sellers, not buyers
After the onset of the pandemic in 2020, the market value of Coca-Cola fell by 36 percent between February to March. From the lowest point during that period, today’s price is more than 50 percent higher.
In times of extreme fear, lots of assets become cheap. What makes this difficult to navigate is that environments of despair can easily cause you to hesitate. You may ask yourself questions like whether people will still be drinking Coca-Cola if the pandemic wipes out half of the Earth’s population. However, writing things down and committing them to paper forces you to behave more objectively. Often, this leads to better investment results.
Write Things Down Today
Do the work now so that you are prepared when needed. Asset prices across many markets were pressured in the few years after the pandemic. For the most part, they have recovered, and investor sentiment is overwhelmingly positive.
In times of peace, prepare for war. If you have benefitted from rising asset prices, great. Stop celebrating and prepare for the next time markets get turbulent. It will come. If you are a future investor, there is no better time than the present to prepare.
It is OK to Go Against the Grain
Operating in this manner is not an easy endeavour and forces you to go against the crowd. However, the benefits are worth it if you put in the work ahead of time.
Atul Sethi is the founder and CEO of Farnam Tree, a licensed boutique investment firm based in Bangkok. Atul has over twelve years’ experience working in investment banking and as a research analyst, prior to starting Farnam Tree.
