The financial crisis of 2008 and the recession of 2013 are still fresh in the memories of investors. Investors saw their portfolios lose by 30% or more of their values. Instead of making decisions rationally during these severe bear markets, many investors tend to overreact and make matters worse. However, amidst this panic or emotional investing there was a small group of patient, strategic investors who saw the stock market collapse as an opportunity.
With no doubt, investing in a crisis is risky, for the timeline market recovery is undefined. Still, those investors who are determined to invest in the financial crisis may reap outsized good returns during the market recovery.
HOW CRISES AFFECT INVESTORS
Often, investors behave irrationally; impulsive and let their emotions get in the way, especially when the market is experiencing a fall.
TAKING ADVANTAGE OF A CRISIS
While majority of the investors panic as asset prices plunge, those with a cool head and patience are able to see the resulting low prices as a buying opportunity. Buying assets during the market crisis is like buying them on sale.
Profiting and wealth creation from investing in a crisis requires discipline, patience, determination, courage, vision, market research, and, of course, enough funds in hand to make opportunistic purchases.
Historically, when the dust clears, when markets are back to normal or re-witness highs, optimism returns and prices bounce back to where they were.
The bottom line remains, economic crises, recession, financial depression occurs from time to time. Studies tell us that people are bound to panic in such crisis, and they do not act rationally. As a result, those with cool heads, discipline, understanding and determined to accomplish their financial goals earn excess returns when the markets rebound from such events.
With no second thought, in investment, timing is everything and buying too early or too late, can take away potential gains.