I find that my biggest psychological issue with downturns is deploying capital. I don’t think people panic sell unless pressured (we hate realized losses)- or unless markets have been down for so long, people give up- I haven’t lived this so far. so the biggest conundrum is to have an emotional capital deployment freeze- not selling losers but also not buying because it’s scary out there. I like to keep a watchlist of good stuff that I’d like to buy at a discount (or top at a discount- many of my holdings trade cheaply).
Good basic common sense advice. It’s meant as a compliment. Good sound advice, in today world, is not to be taken for granted or underestimated. Many of today’s “new” investors would benefit from your simple advice. I hope they take notice. Thank you for sharing.
You won't know the right *time*. The best you can do is to identify the right companies and wait for the right price. If you do those two things, you IRR over 5-10 years should be good even if in the short-term it looks like you might have gotten your timing wrong.
I’d add one more angle: process often feels like a fire drill. In calm conditions, everyone understands why it matters, but few people take it seriously enough. The real test only comes when there is actual smoke in the room. That’s when you find out whether the process was internalized — or just understood in theory.
What I find interesting is that most of these “mistakes” are not analytical they’re behavioural.
In Capital & Character, I explore the idea that markets don’t primarily test intelligence, they test temperament. A drawdown doesn’t reveal what you know, it reveals how you react.
Panic selling, chasing certainty, abandoning a plan, these are not errors in valuation, but failures of character under pressure.
The uncomfortable truth is that the strategy usually doesn’t break in a downturn, the investor does.
I find that my biggest psychological issue with downturns is deploying capital. I don’t think people panic sell unless pressured (we hate realized losses)- or unless markets have been down for so long, people give up- I haven’t lived this so far. so the biggest conundrum is to have an emotional capital deployment freeze- not selling losers but also not buying because it’s scary out there. I like to keep a watchlist of good stuff that I’d like to buy at a discount (or top at a discount- many of my holdings trade cheaply).
That’s both a good observation and a good approach.
Good basic common sense advice. It’s meant as a compliment. Good sound advice, in today world, is not to be taken for granted or underestimated. Many of today’s “new” investors would benefit from your simple advice. I hope they take notice. Thank you for sharing.
Great advice
Hi Gary,
WRT point 1 - don't buy too early. How will we know the right time to buy?
You won't know the right *time*. The best you can do is to identify the right companies and wait for the right price. If you do those two things, you IRR over 5-10 years should be good even if in the short-term it looks like you might have gotten your timing wrong.
I’d add one more angle: process often feels like a fire drill. In calm conditions, everyone understands why it matters, but few people take it seriously enough. The real test only comes when there is actual smoke in the room. That’s when you find out whether the process was internalized — or just understood in theory.
What I find interesting is that most of these “mistakes” are not analytical they’re behavioural.
In Capital & Character, I explore the idea that markets don’t primarily test intelligence, they test temperament. A drawdown doesn’t reveal what you know, it reveals how you react.
Panic selling, chasing certainty, abandoning a plan, these are not errors in valuation, but failures of character under pressure.
The uncomfortable truth is that the strategy usually doesn’t break in a downturn, the investor does.
That’s where the real edge lies.
What I’m doing is catching Crypto when S&P does local bottoms (e.g. this week).
Selling mid of April.
It is a very cyclical and predictable market.