Buy Fear: Lessons from Black Monday
25 years ago, economic concerns over the weak dollar and rising interest rates started making investors nervous. Volatility was through the roof. The market was shifting up and down.
A record single day point gain in the Dow Jones Industrial Average was followed two weeks later by the largest single day loss.
The Dow shed 508 points, or 22%, leading to a $500 billion loss for investors:
It also led to an incredible opportunity.
It’s the hardest thing in the world to do, but buying during a period of investor fear can be incredibly lucrative. Had you bought into the Dow after the 1987 crash, you would have seen incredible gains.
Take a look at this chart:
It took almost a full year before the Dow reached it's previous high of 2709.
If you bought at the top, you'd just be breaking even. If you bought at the bottom, you'd have a 38% gain in your portfolio.
Let's look at it another way as well:
The amount of time needed for a 100% gain in the Dow by investing during the bearish trading sessions after the 1987 crash would be a little over six years.
If you bought the Dow when bullish sentiment dominated the market, right before the 2709 peak in the Dow, it would have taken a full TWO YEARS longer.
If you bought in at the bottom, you'd have a 141% gain right as an investor who bought at the top hit their 100% gain.
We face countless challenges in the US and global economies that could send the Dow, or just about anything else, into a nosedive.
Remember Black Monday if it happens. Watch for a bottom to jump back in. It is incredibly difficult to muster the discipline to do it, but the potential gains explosive.+5
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