Friday, December 27, 2019

How to Become Rich during a Market Crash & Benefit the most from The Financial Crisis !

Who would benefit from a major financial crisis? Certainly people and institutions with political power like , Congresses and parliaments, government bureaucrats and bureaucracies, and heads of state. To the extent that is true ,and the dynamics are more complex than the statement indicates. What are their incentives for preventing financial crises? If you're looking for names, I remember there were quite a few public instances of people who did benefit. Big names like John Paulson's bet against the subprime mortgages earned him a few billion. Bill Gross's PIMCO fund did great. I would also venture that various investment banks like Goldman also made out well. They supposedly packaged these subprime mortgages as low risk, selling them to investors, then turning around and shorting them. These same banks as well as some insurance companies also sold credit default contracts. Since the US fed eventually bought all these toxic derivatives off their books. I'd say they all made out swimmingly. Imagine if I sold billions of options over the years with a low probability of a payout. But when I actually had to pay out, and I didn't have enough money for it, the government just steps in and forks over the money for me! A very sweet deal if I do say so myself. Anyway, basically anyone who sold stocks, MBS, commodities, and all their assorted derivatives at or around 2007 benefited. Anyone on the sell-side, which makes money on volume, benefited. Anyone who bought treasuries also benefited. What did they do with all that money? Whatever they want. Welcome to The Atlantis Report. The 2008–09 financial crisis saw markets collapse, erasing trillions of dollars of wealth worldwide. Savvy investors acknowledged an extraordinary buying chance, with many companies' shares for sale at a huge discount. With markets recuperating from the Great Recession, these investors have achieved enormous profits from their aggressive tactics. Most of us can remember the moment of the collapse of Lehman Brothers. Let’s look at what has happened in the last 11 years: Real interest rates have gone to negative in most countries. You now lose money putting it in the bank. Markets have hit record highs; almost doubled since 2008 and 3.5 times from 2009 lows, now that the Dow hit 28,000. Real wages have struggled to keep up with inflation in most developed countries. So the biggest winners of 2008–2009 were calm, buy, and hold investors. The losers were those that panicked. Not in year 1. I imagine some of those buy and hold investors were feeling worried when the Dow was at 7,300 in 2009, and people who kept money in the bank felt smug. However, if you look at any financial crisis, the buy and hold investor has never, ever, regretted doing that and buying more as markets fall. On average, markets corrections typically last only a few months or a year: In the case of 2008–2009, it took three years. Occasionally, 7–10 years. That is an opportunity for the buy and hold investor to “stack up” on more units at lower prices. Almost like seeing your flights to your holiday resort on special offer, only you know that stacking up on this investment will pay off financially long-term. Those people that try to directly profit from crashes, like speculating on certain stocks going bust by shorting, usually don’t benefit long-term. A good friend of mine bought many bank stocks in 2008 after he realized the government wouldn't allow them to go bust. At one stage, he was on a huge profit, as they bounced from the lows. Long-term, however, he would have been better off just being in the index, as the prices of almost all banks have never recovered. Take HSBC as just one example of many. It went up sharply, but long-term performance has been bad. Although the advice to buy when there's blood in the streets has been imputed to more than one rich investor, it is a sound approach to creating substantial wealth. Other oft-quoted citations whose true origins are debated are that the market can stay irrational longer than you can stay solvent. It suggests that buying when there is panic in the air is much easier said than done. The financial crisis of 2007-2008 was, in all probability, the worst to hit the world since the stock market collapse of 1929. In 2007, the US subprime mortgage market crashed, sending shockwaves across the market. The consequences were felt throughout the globe and even triggered the breakdown of several major banks, comprising Lehman Brothers. Panic followed, with people thinking they would lose more if they didn't sell their securities. Numerous investors saw their portfolio estimates fall by as much as 30 percent. The sales resulting in rock-bottom prices, obliterating any potential gains investors would generally have made without the crisis. Whereas many people saw this as a selling opportunity, there were others who saw this as a chance to expand their positions in the market at a big discount. A stock market crash represents the best opportunity for the average person to get rich. When prices are low, people can invest, and the stock market has always come back. This is why dollar-cost averaging is such an excellent strategy. But to make out, you have to have a pile of money you can apply and have great courage, a penchant for risk, and the ability to wait it out. If you have no money, then you cannot take advantage of the opportunity. “When there is blood in the streets, buy stock” is a famous quote that couldn’t possibly be truer. When people are selling, selling, selling, it’s the time to buy - if you are smart and do your homework and know how to buy. When there is a collapse, the rich suffer disproportionately, but they are often also the best positioned to scoop up the scraps and make money. Stock market crashes have the same critical value that forest fires have ; They create the opportunity for new life and new growth in the ashes. Rich people are more likely to have assets that can be used to scoop up bargain stocks. “No one ever bet enough on a winning horse” is an oft-stated quote when it comes to stock. If you buy 1000 shares of XYZ and it goes up 1000 percent, you won't be congratulating yourself; you’ll be cursing yourself for not buying 10000 shares. This is called “greed,” and you must overcome it. Know when you’ve won and WALK AWAY. In fact, there are adages in stock market circles, “Sell in May, walk away” because the stock market is almost always moribund until September. Take your gains (or losses) AND FORGET THEM. You can never dwell on success or failure of the past; no one ever got successful in the past; “Coulda, shoulda, woulda is three guys I never want to know.” Forget the past. Also, have a plan and stick to the plan. Greed is the biggest killer of all. When you make a decision to sell at “X,” then sell an “X,” and if it goes up, forget it, and if it goes down, forget it. FORGET IT. Dwelling on “what could have been” is the strategy of LOSERS. “It’s never too late to make a losing bet” is another analogy. You have to know your strength and what you can stomach; just because a stock goes down doesn’t mean it can’t go to zero, and there’s no guarantee it will go up. Know what you want and why you want it and what you’ll tolerate for price swings. I never recommend individual stocks other than Blue Chips that pay dividends such as Johnson and Johnson. I was caught up in the US Steel bankruptcy and lost a lot of money in the early 80s. I remember my broker telling me investing in US Steel was a “no brainer.” “You’ll be in the gravy.” Even a blue-chip can fail. It did. I lost the house. In a financial crisis you have to keep your head; if you’re in SP 500 Index Funds, maintain your dollar-cost averaging strategy and increase your monthly contributions as much as you can; if you have individual stocks and you believe in them, then hang on to them and see if they will recover; if you have stocks, you should have a Plan such that if the stock goes down “x” percent you will sell it, regardless, and take your losses because you at least preserve some capital. No matter what, have a Plan. In a financial crisis where there is hyperinflation, then people who invest in the stock market make out because, in inflation, the stock market tends to grow faster. Again, you have to have money to make money, and holding money in inflation is a waste. It has to go somewhere, and that place is the stock market since bonds won’t help you in inflation; TIPS protected investments might help as well. In a deflation, stockpile cash and don’t buy goods - their value simply decreases over time anyway. Deflations are a self-fulfilling failure because people put off buying expecting prices to collapse even further, which creates a death spiral. In October 2008, Warren Buffett announced in an article that he published in The New York Times op-ed section that he was buying American stocks during this equity collapse brought about by the credit crunch. His derivation of buying when there is blood in the streets is to "be fearful when others are greedy, and be greedy when others are fearful." Buffett was particularly talented during the credit crunch. Amongst his buys, there was the purchase of $5 billion in perpetual preferred shares in Goldman Sachs (GS) that paid him a ten percent interest rate and also incorporated warrants to buy additional Goldman shares. Goldman also had the option to repurchase the securities at a ten percent premium. This agreement was struck between both Buffett and the bank when they struck the deal in 2008. The bank eventually bought back the shares in 2011. Buffett did the same with General Electric (GE), buying $3 billion in perpetual preferred stock with a 10 percent interest rate and redeemable in three years at a 10 percent premium. He also purchased billions in convertible preferred shares in Swiss Re and Dow Chemical (DOW), all of which needed liquidity to get them through the tumultuous credit crisis. Consequently, Buffett has made billions for himself but has also helped steer these and other American corporations through a particularly difficult time. In the upcoming collapse, which I predict will occur next year, cash will be king. I recommend to everyone to start stockpiling cash. If I am wrong and the economy doesn’t collapse (and I am often wrong) then you will have a pile of cash available for other things, and that’s never a bad thing; but if there is a crash, then real estate, stocks, and other securities will decline in value - perhaps rapidly - and having cash is the only safe thing to have. In a financial crisis other than inflation, cash is king. This Was The Atlantis Report. Please Like. Share. And Subscribe. Thank You.

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