By Craig Erwin, Ph.D.
“It was the best of times, it was the worst of times…” Thus begins Charles Dickens’ novel, A Tale Of Two Cities. It may seem hard to find any evidence that these are the best of times, given the horrible bloodshed in Ukraine, but there are always reasons for optimism. At the same time tragedy is unfolding in Ukraine, our arch nemesis for the past two years, Covid-19, responsible for so many deaths, appears to be fading.
Professional money managers are holding high amounts of cash. They may think it’s too risky to invest in stocks and bonds because of the war and the risk of a global recession. Although their fears are warranted, perhaps some will be brave enough to buy when the rest of the world is selling. Although it takes great courage to invest when uncertainty and fear run high, that is when the rewards are often greatest.
Baron Rothschild, a famous banker said, “the time to buy is when there’s blood in the streets, even if it is your own.” He lived at a time when wars were common in Europe and investments like stocks and bonds usually tumbled when wars began. Thankfully, wars are less common today, but that doesn’t make the war in Ukraine any less senseless and tragic.
For investors, terrible times can offer opportunities, although mustering the courage to take advantage of them is hard. John Templeton, who started the Templeton Growth fund, learned the value of making brave decisions in the darkest hours. Templeton, one of the most successful money managers ever, famously bought every stock on major U.S. stock exchanges trading for less than a dollar a share (including those of bankrupt companies) just after Hitler invaded Poland. At the time, John was 26 years old and lived in a small Tennessee town. He acted because he thought sentiment had reached maximum pessimism. Although his stocks declined further after he bought them, his instincts were good because eventually almost all the stocks he had bought rebounded (even those of bankrupt companies). When he sold in 1944, he had more than quadrupled his money.
It’s easier to muster the courage to buy stocks during a recession than a war, but it still takes courage. During a nasty recession, I met with a representative of the company managing my retirement savings, I asked him where everyone else was investing their money and he told me that everyone had sold their stocks and sought safety; they weren’t taking any risks. I told him that I wanted to do the opposite of everyone else and keep 100% of my money in stocks. He advised me against it, saying it was way too risky, but I knew you couldn’t earn above average returns by following the crowd, so I stubbornly insisted on staying 100% invested in stocks. It was one of the best decisions I’ve ever made.
For more information on risk, investing, and the stock market, click on the following links: