Summary

The author advocates embracing market downturns as opportunities for strategic investing, emphasizing the importance of buying undervalued assets during red days and focusing on long-term gains rather than short-term profits.

Abstract

The article discusses the author's contrarian investment philosophy, which is inspired by Warren Buffett's advice to be fearful when others are greedy and vice versa. The author prefers to invest only on days when the market is down, viewing these as opportunities to purchase valuable assets at a discount, particularly those that pay dividends. The piece criticizes the speculative trading frenzy fueled by COVID stimulus, which led many new traders to make risky bets on volatile stocks and assets like GameStop and cryptocurrencies. The author emphasizes the need for a solid investment strategy that includes diversification, fundamental analysis, and avoiding overtrading. They share their personal success with a strategy focused on undervalued companies during market downturns, holding these investments for years, and enjoying the process of investing rather than the immediate gains. The author encourages readers to shift from trading to investing and to find joy in market downturns as a chance to buy assets with potential for long-term growth.

Opinions

The author expresses disdain for the market euphoria during green days, preferring red days for strategic investments.
They equate red days to clearance sales, where one can buy valuable assets that pay dividends, as opposed to short-lived pleasures from typical sales.
The author criticizes the distorted view of investing created by the COVID stimulus, which led to speculative trading in meme stocks and crypto altcoins.
They point out that many who jumped on the trading bandwagon during the stimulus-fueled frenzy saw their accounts suffer when market conditions changed.
The author believes that to make money over the long term, one must rethink their strategy and embrace red days.
They suggest that feeling ill when the market is down is a sign of a flawed investment strategy, which may involve betting with money one doesn't have, overleveraging, undercapitalization, insufficient diversification, overtrading, ignoring fundamentals, or gambling on small-caps and options.
The author claims to have outperformed the market by focusing on buying undervalued companies during downturns and holding

One simple tell that your investing strategy sucks

I can’t stand green days on the market.

When everyone else is whooping it up, I’m over here rolling my eyes.

That’s because I follow Warren Buffett’s sage advice: be fearful when others are greedy, and be greedy when others are fearful.

A more visceral version: buy when there’s blood in the streets.

One of the main tenets of my investment strategy is that I only buy on red days for the S&P 500.

Long periods of green are boring.

Long stretches of red present opportunities.

If your stomach sinks when you open your trading app in the morning, it’s probably time to rethink your approach to the market.

Illustration of a red stock chart (credit: James Julian/Dall-E 2)

Digging for value

I love digging around for value, and when I find a company on sale — especially one that pays dividends (passive income anyone?) — I get hyped.

Red days are like clearance sales at the mall, only instead of buying a shirt that you’ll probably throw away in a year or some crappy trinket that’ll give you a bit of short-lived pleasure, you’re buying an asset that pays you.

Unfortunately, the COVID stimulus pump that created a new class of trader bros completely skewed people’s view of what investing is.

It also created a fantasy that everyone could get rich trading garbage like GameStop and crypto altcoins forever.

(Side note: At the height of the frenzy, GameStop traded for $119 a share. At the time of this writing, it’s close to $19).

No question, some people did get rich during that crazy time, but for most people who jumped on the bandwagon expecting the gravy train to roll on forever, their accounts got destroyed.

They would make nonsensical bets into a market that was no longer swimming with stimulus money and then pray for green the following day.

Many of the gamblers have already left, but for those of us still here, opportunities abound.

If you actually want to make money over the long term, however, you’re going to need to rethink your strategy and not only be comfortable with, but learn to love, red days on the market.

A second illustration of a red stock chart (credit: James Julian/Dall-E 2)

Why your strategy sucks

First, assess your account and positions. If you’re upset on days the market is red, you probably have one of these issues with your investing strategy:

You’re betting with money you don’t have
You’re betting too big based on the amount of money you do have
You are undercapitalized and unable to add positions at will
You’re insufficiently diversified and are living and dying by a handful of symbols
You’re overtrading
You’re ignoring fundamentals
You’re just straight gambling on small-caps and options

Over at my investment writing account James Gordon, I’ve described three portfolio strategies that I follow for all my equity buys.

Over the past five months that I’ve been rebuilding my portfolio after selling everything when Jerome Powell and the Fed signaled quantitative tightening, I’ve been crushing the market.

My entire investment strategy revolves around buying undervalued companies when the market is tanking, with the intention of holding them for years (not days or weeks).

For all these reasons, I’m unmoved by short-term volatility.

I’m getting paid to hold my stocks for a long time, I’ve assessed them as worth more than they’re selling for, and I’m happy to wait until they reach their potential.

When they’re green, I typically beat the market, but that’s not exciting to me.

What’s exciting is the process, the chase.

And the chase is on hold when the market is strong.

If you feel ill when you open your trading app every morning, maybe it’s time to rethink your market participation.

Stop trading and start investing, and you too can learn to love red days.

The views in this article are the personal views of the author. This commentary is provided for general informational and entertainment purposes only and should not be construed as financial, investment, tax, legal, or accounting advice. It does not constitute an offer or solicitation to buy or sell any securities. Consult your financial advisor prior to making any financial decisions.

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