REVISITED: Buy When There’s Blood in the Streets

It’s not about trying to time the market – but trying to understand the herd we call humans

On March 22, I posted a blog, “Buy When There’s Blood in the Streets,” with the message: follow the money in a crisis, and then act on it.  Which usually results in action contrary to what the herd is doing. Because it is the herd that feeds the cowboys.

The point of the blog was not to question the dubious COVID-19 lockdown, but rather to assess the economic situation and take the appropriate financial actions and risks.  In the case of COVID, quoting from that blog, “…both history and data tell me that the Coronavirus offers a very convenient means for a global sell-off, resetting a very tired, decade-old bull market.  The bulls were pretty sure there’s be a lot more downside than opportunity for more growth, but what is the catalyst for the sell off…?” Well, here it is: the S&P 500 average over the past six months:

The low point on this chart (2,192) was Monday, March 23rd, the first trading day following that blog and, as the chart shows, in the midst of a precipitous and literally unprecedented sell-off.  Yesterday, June 5th, the S&P (as shown above) closed at 3,194, a gain of just over 1,000 points, or up 46% from the low.  In other words, anyone who put $10,000 in the market on March 23rd would have gained over $4,000 to date in less than just over two months (or $40,000 on $100,000…).

Now, at the time I wrote the blog, I had a number of people comment, “I agree with you, but not yet,” which means that they 1) really don’t agree, or 2) just didn’t get the point.  That is, buying when there is “blood in the streets” should make you physically ill – being a contrarian is hard – it goes against every instinct of being human, being part of the tribe.  The real fear with Coronavirus was not getting infected, but rather having a view that the rest of the crowd believed to be “stupid.”  For countless millennia, our DNA has been programmed to be included in the tribe, and since the first humans started gathering in groups, our worst nightmare has been ex-communication.

So, in understanding the herd, there is one maxim I’ve always held: the conventional wisdom is always wrong – given enough time.  Figuring out the timing is always a challenge, but whether it’s a flat earth or even Newtonian physics, time and more experience will prove the old dictums inaccurate. 

To wrap this up, I said on March 23rd that unlike the herd, Wisdom was open for business.  In fact, in the ten weeks since, we’ve increased our Assets Under Management by a whopping 50% by investing in new companies as well as adding additional funds to existing investments.

On to the next crisis, and the herd has already changed direction and is stampeding again (don’t let social distancing ruin a good protest).