In the fall of 2008, with the US economy faltering, Warren Buffet went shopping.
As others scrambled for the exits, the Oracle of Omaha made multi-billion dollar investments in companies like Goldman Sachs, Bank of America and Dow Chemical. He reaped an estimated $10 billion in profits when the market rebounded.
As Buffett famously said of both socks and stocks: “I like buying quality merchandise when it is marked down.”
Right now, new investors would be wise to consider following Buffett’s example, if on a smaller scale. Though storm clouds loom and events like the FTX collapse have some running scared, it could be an optimal time for new investors to get their feet wet — with a few caveats.
As an investor and venture capitalist who has weathered two decades of market swings, I know this bear market could present an opportunity for new investors with disposable income who are willing to hold investments long-term.
This year has been a wild ride, with market valuations ping-ponging ever since the benchmark S&P 500 index officially entered bear territory in June.
But the upside is new investors can get some fantastic bargains now that valuations have fallen back to earthly levels. Indeed, value investors are already picking up undervalued stocks poised to rebound in the years ahead.
Unlike last January, when the soaring market defied the laws of finance, this year has brought valuations back into alignment with business fundamentals like cash flow and price-to-earnings ratios. In other words, the rules of business apply again, making it easier to analyze a company’s health and prospects.
Finally, a downmarket buy makes it more likely that new investors could have positive experiences and modest positive returns as the economy rebounds. A steadily growing book value is a great motivator to continue investing and building the skills for long-term success.
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3 tips for first-time investors
So, how could you best capitalize on this down market? There are no secret formulas. In both crypto and traditional markets, new investors are best served by rules that have guided generations of seasoned pros.
Consider avoiding a “getting rich quick” mentality
Investing is a marathon. This is especially true in the evolving crypto space, which can be highly volatile in the best of times. Despite apocryphal stories about savvy investors making a killing by timing the market, it’s nearly always time in the market that matters because, over the long-term, markets tend to grow.
A recent analysis by Putnam Investments shows that an investor who held steady over the last 15 years would have doubled the return of someone who missed just 10 of the best days over that same period. In other words, a $10,000 investment at the end of 2006 would be worth $45,682 15 years later. An investor who played around and missed just 10 top days during that same period would miss out on $24,753 in earnings.
As chastened investors sift through the ashes of their portfolios, there’s a dawning appreciation that too good to be true is too good to be true.
Find your zen
Holding an investment for the long term requires mental discipline. That’s especially true when values fluctuate, something endemic to crypto markets. That’s why it’s important to only invest money you won’t need for several years — and not next month’s rent check. That security means you won’t be tempted to sell in a panic whenever values dip.
As legendary investor Jack Bogle says, volatility is not the same as risk. Nonetheless, we all feel more acutely the pain and anxiety of potential losses than the joy of market successes. The key to short-circuiting this biological fact is to have a plan and stick with it, learning to separate your emotions from investment decisions.
Do your homework (with a caveat)
Look before you leap is classic investing wisdom. These days, however, it’s not always easy for investors to do their homework, especially when it comes to the world of crypto. The proliferation of scammers and self-styled “gurus” on social media can make it difficult to know who to trust.
Some new investors try to hedge their bets by following the lead of heavy hitters — but even that can be an error. Hedge funds and institutional investors can afford to take a few big risks in pursuit of a big payout. For most new individual investors, that won’t be the case.
For ordinary investors, the key is to know your knowledge level and invest accordingly. Exchange-traded funds are a great potential option for brand-new investors who don’t have time for original research. Investors taking their first foray into crypto or blockchain companies should educate themselves about some of the important differentiators from more traditional investments, including regulation and irreversibility.
For those ready to tap into specific tech sectors or emerging companies, look for offerings from investment managers with a long track record of outperforming the market. Spotting the “next unicorn startup” is rarely easy, so turning to a trusted manager with a diversified portfolio of companies to spread the risk is key.
These are gloomy days for the markets, but that could be good news for new investors looking for an easy entry point and good deals.
Provided they invest money they won’t need in the short term, take a “get rich slow” approach to investing, stay calm and do their homework, they may find that 2023 could be a good chance to get in the market.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Shafin Diamond Tejani is the founder and CEO of Victory Square Technologies, which supports technology startups through sustainable growth.
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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