This is the principle I’ve invested on, this is the principle I’ve thrived on.
In early 2007, there were many of us who could clearly see a storm was coming. When you’ve got people saying things like “they aren’t making any new land, real estate can only go up forever!” you know you’ve got irrational greed on your hands. And so I sold in 2006 and held 100% cash, because you should be fearful when others are greedy. And when the market tanked, I printed tendies. Just as many of you are printing tendies now.
But after that precipitous drop in Oct. 2008, I turned around and began buying stock. Why? Because the sentiment of the market had changed. Because you should be greedy when others are fearful. I held that stock until 2018 and sold for another massive profit.
Now we are seeing a near identical repeat of 2008. The bears have been rewarded for fearing the greed of the bulls. But things can turn around quickly. At some point bears become the greedy party, betting WITH the fear. People are still buying puts after a 30% down market. We’ve got people on sub predicting a complete financial meltdwn, millions ded, a new GD… I mean, anything is possible, but if you are betting on that, your greed is getting the best of you.
The point is to be neither a bear nor a bull, but a general contrarian of extremes in the market. For the past several days, the extreme sentiment is clearly bearish, just as the extreme sentiment was extremely bullish a year ago.
You all have printed your tendies, but now you are getting greedy. Fear has taken over the market, and so now I am buying that fear. I am converting from a gay bear to a bull, starting this week.
Sure, the market will very likely continue to drop in the coming weeks or so… I will buy my way back in gradually, because I know I can’t perfectly time the bottom. The goal isn’t to maximize every possible percent move of the market. Chasing that dream will make anyone broke. The goal is to trade contrarian to market extremes. This week the market has become extreme bearish, and so I am reservedly bullish.
TL;DR – Your puts are still safe, but stop buying them. I’m not even buying calls, just going LONG on todays drop. And with every red day, I will be buying more, until the money is all gone.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.