The quote “Buy when there is blood on the street” was coined by Baron Rothschild in the 18th century after the Panic over the Battle of Waterloo against Napoleon. At that time, after the war, there was literally bloodshed in the streets. This current expression can be interpreted as “buy when there is the most pessimism”. Why is this possible? This is the moment when prices are at their absolute lowest level. The risk is the lowest and the reward the highest, as prices are likely to rise the most from the lowest point.
What are the signs when there is bloodshed in the streets in connection with investments?
People do not want to look at their bank statements or positions. Because of the losses in the markets, people are disgusted and turn to denial. This translates to not wanting to see what is happening to their accounts for fear of reminding them of the pain of their losses.
Markets are hated. People do not want to talk about investing in parties, social networks or their business contacts. Investing becomes a source of shame and failure.
Everything for sale, even the highest quality securities to pay the margin. If you follow the market statistics, the ratio during the market corrections is 1. This means that all markets are falling at the same pace as the panic continues. Why? All securities are sold at once to repay margin payments or to repay loans borrowed for investments. Another term you will hear is that people are liquidating their leverage or paying off their investment debt. The use of debt is related to the severity of these market corrections.
The price of the required product is projected to be zero. This happened in April 2020 in connection with the price of a barrel of oil. Oil is the commodity that is needed for the daily consumption of people, աշխատանք labor, resources are required to extract it from the ground. The zero price is not realistic, it must be returned. The price of Bitcoin is also projected to be zero, but it is not an everyday commodity (yet), so in this case it is more difficult to use this argument.
Everyone tells you not to buy, the news is very negative. It is known that the media exaggerates problems, causes negative emotions, such as fear, anger, despair. To the bloodshed of the streets are added financial talk shows, newsletters, and the everyday investor who thinks he is gloomy in the corner.
There is usually a moment of horror or despair when panic occurs in a moment of despair. It happened in 2008, when the delivery was stopped. It happened in 2020, when GDP was projected to fall by 30%, and in April 2020, oil was trading in the futures market at a negative $ 37 per barrel. do not respect the release of their product or the announcement of the rescue of Lehman Brothers in September 2008.
Here are some caveats: A market that is down 30% or more is not necessarily a great shopping opportunity. The technology market failed in 2000 and did not recover for many years. When the market really recovered, there were different companies that were leading the way in technology compared to that time. You can buy the Nasdaq index և to participate in the recovery. Japan also crashed in 1991 and has not yet recovered. The key is to find out which markets are the companies that need it, will return because of this need, as opposed to markets that are frothy and will not recover. There is no hard and fast rule to solve this difference, but some of the main factors are: If it’s a common market like the S&P 500, if it’s an industry or product that is always in demand on the main streets, or if the ratings are really low. crashed կշ will remain low in the foreseeable future, then this market is likely to recover.
Buying blood on the street is emotionally difficult. You are going against your family, your friends, your broker, your news: sources. If you want comfort, this is not for you. If you want to make a huge profit on your investment, this strategy is worth considering.