What To Do When the Hounds Smell Blood in the Streets

It is difficult to follow posting plans and schedules when there is so much disturbing news all around. When there is so much talk of turmoil or imminent danger thereof, we feel the need to bend with the wind, so to speak, to stay relevant.

The debt default was averted just in the nick of time…just like a hero escaping toast in many a Hollywood movie. For a while it looked like the catastrophe of another financial meltdown has just been prevented. Or so it seemed, about a couple of days ago.

How I wish these were a Hollywood movie…where the debonaire hero or the knight in shining armor not only evades toast for good, but also, goes on to date and finally wed the rescued beauteous damsel in distress. The movie then ends with the hero and the beauteous lady locked in tight embrace ready to live a happy life ever after.

Alas, reality sets in and it looks far more ugly, far more messy and far less prone to contrivance than a Hollywood movie.

The cold reality is that so much debt pressure has been dammed up and now, going by the headlines, it looks like the dam is about to burst. Or showing unmistakably ominous signs of something far worse in the offing.

And so the headlines are all around us:

Standard and Poor downgrades US credit rating from AAA”, banners the Associated Press (AP).

Finger pointing follows debt downgrade,” headlines MSNBC.

“World stocks plunge amid recession fear,” reports AFP, Reuters and New York Times News Service.

Is another market crash coming?” asks the Wall Street Journal.

Stocks tumble on foreign worries” headlines the local Philippine Daily Inquirer

The news and opinions go on and on.

Well, the important question now is: How does this concern us, micro-investors and would-be micro-investors?

What do we make of these, or more importantly, how do we proceed with our micro-investing business and protect ourselves and avoid losing our shirts.

Just a few thoughts or hints (whatever you call it) that may prove helpful.

1. Avoid the equities in the meantime.

By “equities,” I refer to stocks and equity funds. With all these news and talks of tumbling markets and recession or imminent danger thereof, it looks prudent and best to avoid the equities in the meantime.

Frankly, the current “tumble” of stocks is something, I believe, to be a preview of an even bigger tumble. Wait for a few months and the current tumble may look like a child’s play or may seem like just stubbing your toe on a stud.

2. Go cash, or better still, put funds in time deposits of “months” up to a “year” in maturities.

The important thing is to be liquid at these times and wait in the meantime. Use the waiting time to learn as much as you can about equity funds and stock investment.

The waiting may take months or even a year or two. But believe me, the waiting will be worth the while. This leads us to the last hint.

3. Pounce when there is so much blood in the streets.

This is the time-tested strategy followed by many legendary hounds in investment and as far as I know, it never fails.

I followed this strategy in 1997, during the Asian crisis. After a few years of just plain reading and studying, I entered the equities just as there was much blood in the streets and everywhere.

Everybody then, was afraid to invest in equities and the stock markets were awash with bargains.

The stocks I studied and liked most were unbelievably cheap (now they are sky high). I made a lot of gains after just a few years on the few stocks and equity funds I bought. And it looked so easy I even wondered if it was just pure luck.

Now, this strategy may not be easy to implement in actual practice since blood engenders fear and the more blood, the greater the fear.

Well, just ask or refer to the legendary hounds Sir John Templeton or George Soros.

Sir John Templeton says:

The time of worst pessimism is the best time to buy and the time of greatest optimism is the best time to sell” (Or something to this effect).

Soros, on the other hand, proved himself to be, not only a hound, but also a pig at the same time.

The latter even makes an uncanny and clinically detached rendition of what “being a pig” in investment means by saying something to the effect that:

When the opportunity for making money is there, one cannot really own enough. It takes courage to be a pig.”

Well, greed or “pig-hood” may have some value in investment after all. Probably sometimes.

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3 Responses to What To Do When the Hounds Smell Blood in the Streets

  1. Tony Ranque says:

    The local stock market is down the past few days. Is this the bigger “tumble” that you mentioned, or the worst is yet to come?

    When can we say “there is already so much blood on the streets” so that we can start “pouncing”?

    • admin says:

      There are no hard and fast rules. In 1997 during the Asian Crisis, the PSE index went down as low as 1,500 from a high of about 3,200. There was so much blood and so much fear everywhere. That’s exactly the point that I started accumulating my positions. The market went down even a little further then gradually started to reverse. Practically all my positions eventually paid off very handsomely in varying degrees.

  2. Tony Ranque says:

    After Philippine Stocks took some beating the past few days, today it starts to recover ironically after a day’s respite due to typhoon pedring.

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