Dangers and Opportunities: How can you not let a good market crisis go to waste? [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Hi, everyone. Happy mid-week!
Each Wednesday, we discuss various investing tips, insights, and strategies because we believe this financial activity will help us achieve true financial freedom. This will positively impact not just our personal lives but also our families’ lives.
Today, we’ll discuss one of the coaching comments my friend and colleague, Professor Joel Litman, delivered to his workforce at Valens Research.
Interested to know more about today’s feature?
Read on to understand why you shouldn’t let a good market crisis go to waste.
The Independent Investor
Former U.S. President John F. Kennedy (JFK) once said:
“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger, and the other represents opportunity.”
JFK said this in 1959, when he was running for the presidency. Since then, the statement has become a favorite saying in the worlds of business, education, and politics. Some iconic presidential candidates after him even borrowed the statement, including former U.S. President Richard Nixon and former U.S. Vice President Al Gore.
However, JFK got one thing wrong in his statement. His translation was quite inaccurate, and some linguists explain why…
The Chinese Word for “Crisis”
In China, the word “crisis” is known as wēijī and has two characters in Chinese writing. It is written as 危机 for simplified Chinese and 危機 for traditional Chinese.
The first character (wēi) is correctly translated as “danger” in English. The second character (jī) is quite inaccurately translated as “opportunity” because it is only part of the actual Chinese word for opportunity—jīhuì.
According to Professor Victor H. Mair, jī pertains to something more like “crucial point” or the point at which something changes or occurs. The mistaken etymology only became a trope after JFK used it in his presidential campaign speeches.
Let’s not take this against the former U.S. President, though. In fact, his botched translation can also be used as a lesson for investors nowadays!
Stock Market Crisis: A Danger and An Opportunity
Let’s take JFK’s translation of the Chinese word for crisis in the context of investing. According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, a market situation that appears dangerous can also be a turning point… and an opportunity.
… but don’t be discouraged! Professor Litman says while it’s true that the market nowadays looks scary, it’s also an opportunity to see strong returns. The best course of action is to buy low and sell high, not the other way around.
Sadly, some investors are still selling at the bottom of the market, desperate to unload some of their holdings.
Here’s another thing Professor Litman noticed in today’s stock market:
It’s not at the absolute bottom! When he and his team at Altimetry looked at Uniform Earnings for corporate America, Uniform Credit Ratings and Analysis, and Earnings Call Forensics, they saw strong management sentiment and low bankruptcy risk.
What does this mean?
Where others see a dangerous market, Professor Litman and his team see a wonderful opportunity… and you should too!
Don’t let this good market crisis go to waste. Take advantage of today’s setup and buy the dip. Additionally, spread out your investment into U.S. equities by dollar-cost averaging over the next 10 months.
[Dollar-cost Averaging: This means investing a set amount of money at regular intervals, regardless of what stocks are doing.]
This technique will help you because in a volatile market, it can be dangerous to put your money in a certain stock all at once. It’s also impossible to know exactly where the bottom will be or when it will occur.
However, being a prudent investor means buying a portion of your total planned investment on a regular schedule, no matter what the daily stock market blips show.
Besides, by spreading out your investments, you’ll safely buy into the market when it’s cheap!
Professor Litman says despite experiencing stock market volatility nowadays, investors shouldn’t panic because proprietary market indicators are flashing green.
This means investing in U.S. equities today will enable you to do well, regardless of where you live around the world. With strong earnings, lower valuations, lower chances of bankruptcy, improving management sentiments, and increasingly strong U.S. dollar, the U.S. markets are set to bode well in the long term.
These also explain why you should trust reliable signals and ignore the financial media’s unfounded sensationalism.
Take note of these insights and apply them to your own investment strategy!
Always remember that in both investing and life, there are ups and downs. However, the “downs” can open doors and chances at awesome financial gains if you’re prudent enough.
… and when the market hits its next major turning point, one of the things you must do is to NOT miss that opportunity.
We hope you learned a lot from today’s “The Independent Investor!”
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqu’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
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