Get the 3M’s right
In every crisis, there is an opportunity. But, how does an investor make use of it? Participating in an opportunity is the only way to benefit from a crisis. One needs to invest when there is panic all around him. But, it isn’t as simple as it seems. Most investors seldom react to an opportunity. Despite knowing very well that they could benefit from their actions, investors mostly fail to act. The reason for this is simple. Knowing what one must do is simply not enough. You must prepare yourself enough to actually do it. To walk the talk, you need to be in a ready state of mind, money and math. You need to know to smell an opportunity. You must have enough money ready to be invested at short notice. You should know how much money to invest. If all three aspects- mind, money and math are in a state of readiness, investing is more likely to happen. Otherwise, every crisis will come and go while you remain a mute spectator. Selling needs as much preparation as buying. When to sell is the most important investor concern which has no ready answers. A lot has been written and read about this subject. Behavior is the core problem as you need to act against what others are doing. If your math is right and you are ready to think objectively, then you have prepared yourself enough to decide sensibly on a sell. When your mind and math are in place, selling becomes much simpler. Yet, one needs to sell when there is buying frenzy all around him. An investor’s persistent challenge is to constantly prepare to play contrarian to Mr. Market.
Investing is the intersection of economics and psychology. – Seth Klarman