When There’s Blood in the Streets, It’s Time to Buy

When There’s Blood in the Streets, It’s Time to Buy

Mr. Wonderful here –

While I wish I could take credit for that time-honored expression, it actually dates back to Baron Rothschild. And it’s been true since before there was even such a thing as a stock market.

Let’s step back and look at investing 101: I don’t care if you’re talking about public securities, private equity, or crypto – the key is to buy at a discount to fair value, NOT at the market peak. Right now, the market is spooked – especially tech stocks that were flying off the shelves a year ago. Today? The Nasdaq is down almost 4000 points YTD, and anyone naive enough to buy in during last year’s highs probably got wiped out.

It’s a tough lesson but one that makes you a better investor.

When I was a young buckaroo trader, the market took a dip and I got slaughtered investing on margins. That hurt and it taught me a valuable lesson about the dangers of gambling in a bull market. But did I lick my wounds and retreat? No. Long term, you just have to stomach it, and when everyone else is afraid – that’s when you get greedy.

Here’s a famous example that a lot of young investors may not know: in ‘73 inflation drove stocks into a bear market – sound familiar? Then, The Washington Post had roughly $400M in assets, but their market cap was down to $80M. So now ask yourself: was this a stock headed to zero or was this a seriously undervalued company? Well, Berkshire Hathaway stepped in and bought it. Fast forward to 2013 and Berkshire exited their position at an over $200% profit.

Will every investment you make be the next Washington Post?

No way. There will be losers in this market, which is why you need to diversify. 

Take a look at my own portfolio. At any given time, I have as many as 30 or more positions in digital assets. It’s no secret that crypto has had a beating this year – that’s why I never invest more than 5% in any one asset. I expect some to fail, particularly in a high-risk sector. But just one or two winners can more than pay for all the losers. And right now, they can be bought on the cheap.

Today firms are drawing down their revenue and earnings numbers as their P/E is getting crushed. The sheep will sit on the sidelines or start chasing fixed-income assets; meanwhile, smart investors will see opportunity.

What’s true in public securities is also true in private markets.

Two years of a red-hot venture capital market drove startup valuations to an all-time high this spring. Well, now we’ve just had back-to-back quarters of shrinking VC investments, which means the waters are receding and we’re starting to see who’s been swimming naked.

Times like these are some of my favorites to be an investor because today founders are accepting terms that would have been unthinkable just a year ago. That tells me that my dollar will buy a lot more equity now than it did then. It also tells me my potential gains are significantly larger.

So I’m not surprised when I hear platforms, like StartEngine, say they’re seeing triple-digit growth in new investors – because, after all, when there’s blood in the water, it’s a good time to be a shark.

Kevin O’Leary is a paid spokesperson for StartEngine. View the details here.