Rule Du Jour: Rule #9: Buy When Fear is High  (Patreon)

Rule Du Jour: Rule #9: Buy When Fear is High 

The investing rule i often refer to as running into burning buildings or otherwise known as "buy when there's blood in the streets" is a contrarian investment strategy that encourages buying assets when market sentiment is extremely negative or fear if very high and prices have dropped significantly.  My concept of "running into a burning building" is that it involves taking action when others are fleeing. ie we buy when others capitulate.

Here are three key advantages of this investing approach:

• Potential for high returns: When markets are in turmoil - prices drop into severe oversold condition. Buying at these low prices lead to substantial gains when the market recovers.

• Contrarian advantage: As you know, I like to blaze my own trail and go against the crowd.  When fear is widespread, even fundamentally sound investments may be sold off indiscriminately, creating opportunities for those willing to go against prevailing sentiment.

• Reduced competition: During times of market panic, there are way fewer buyers in the market. This reduced “bid” crashes prices and this is why we always have cash to exploit.