It is best to acquire stocks during a market crash, especially those that are forced to be sold regardless of the price. There is nothing better than this; many of our best trades are made for this very reason. However, we have two observations: You cannot rely solely on buying stocks from forced sellers or selling stocks to forced buyers for a living, as they won’t always appear in the market—they only emerge during extreme crises and rare bubbles. In our world, buying stocks from forced sellers is the best thing, so the worst thing is becoming a forced seller. This means it is crucial to arrange your finances well; you must ensure that you hold stocks even in the most difficult times, without being forced to sell them. This requires both long-term capital and strong psychological fortitude.
During a bubble, investors’ obsession with market momentum overrides any concept of value or fair price. Greed (coupled with the internal pain of watching others easily profit) eliminates the necessary caution.
“Universal Belief in No Risk” is a Rare High Risk
In a bull market, especially after the bull run has continued for a period, investors often say: “Risk is my friend, because the more risk I take, the higher the return will be, so please give me more risk.” The reality is that risk tolerance is completely opposite to successful investing. When investors are not afraid of risk, they accept it without demanding compensation… and the compensation for that risk disappears.
A Major Factor in Risk Arises from the Belief That Risk is Low
“No matter what price, I won’t buy it; everyone knows this risk is too high.” I hear many such statements in life, and I have participated in the best investment opportunities that follow them…
I firmly believe that investment risk most often occurs where it is least noticeable, and vice versa:
When everyone believes that something is high risk, their willingness to buy usually drives the price down to a low-risk level. Universal pessimism makes it the lowest-risk thing because all the optimistic factors in the price have been eliminated. Of course, as the experience of the “Pretty Fifty” investors proves, when everyone believes that something has no risk, the price is driven up to a point of huge risk. No risk means there is nothing to fear, and therefore, no return is offered or demanded for taking that risk—meaning there is no “risk premium.” This turns the most lauded thing into the riskiest thing.