Panic Buying of Investments Is a Bad Sign

Panic Buying of Investments Is a
Bad Sign
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/profitable-investing-tips/panic-buying-of-investments-is-a-bad-sign
A friend of ours commented
recently that panic buying of
investments is a bad sign.

He is old enough to remember
when the three Hunt brothers tried
to corner the silver market and
failed.

Panic Buying of Silver in
1979 to 1980

The boom and bust of silver prices
is remembered as Silver Thursday,
March 27, 1980.

Silver was trading at around $6 an
ounce in early 1979 and as the
brothers purchased increasingly
larger amounts of silver on margin,
the price rose to $49.45 by January
18, 1980.

By that time the three Hunt
brothers controlled a third of all
silver on earth that was not in
government hands!

Our friend commented on how
people were taking money out of
their bank accounts to buy silver as
the price went up.

Specifically, when the plumber
came out to fix a leaky pipe at our
friend’s home, the plumber
confessed that he had “invested”
his life savings of $30,000 in silver
bullion so that he could retire soon.

The sad fact of the matter for our
friend’s plumber is that the COMEX
tightened margin requirements with
Silver Rule 7 and when the price of
silver fell ever so slightly, the Hunts
did not have the cash to meet their
margin call of $100,000,000.

They had to sell at huge losses and
the price of silver fell by half in just
four days.

Silver traded at $15 an ounce by
June of 1982 and at $6.46 in
January of 1993.

Needless to say the plumber lost a
large portion of his life savings.

Hunt Brothers Testifying before Congressional Committee

Panic Buying of Bitcoin

Our friend is now well into
retirement and living in Latin
America.

He met a realtor in the coffee
growing and mountainous region of
Colombia when looking at property
there.

This was in December of 2017.
While Bitcoin had started the year
at $900, it was approaching
$20,000 and everyone wanted to
know how to join in the profits.

The realtor admitted that she had
emptied her bank account and
bought Bitcoin at $15,000.

She was so pleased that her
investment had gone up right away
and that her Bitcoins (3 of them)
were worth $19,000 each!

She, like the plumber two
generations before, envisioned an
early and comfortable retirement.

Our friend used his best Spanish in
trying to relate the story of the
plumber, the Hunt Brothers, and
the boom and bust of silver.

The lady kept talking about how
anyone with any sense should be
buying Bitcoin right now (¡Ahora
Mismo!).

Bitcoin peaked on December 17,
2017 at $19,783.06 and by
December 22 was selling for
$13,800.

By February 5, 2018 you could buy
a Bitcoin for $6,300 and by
Halloween the cryptocurrency had
stabilized at $6,300.

Our friend has not had any further
contact with the realtor but
suspects that any plans for an early
retirement have been put aside
indefinitely.

Bitcoin Debacle

Panic Buying of
Investments Is a Bad Sign

The twin demons of investing are
fear and greed.

Warren Buffett has often been
quoted to the effect that the time to
buy is when everyone is afraid and
selling their investments and the
time to sell is when everyone is
buying in a panic.

The point is that stocks, real estate,
commodities, Bitcoin, and the rest
all overshoot their fundamental
or intrinsic value when investors
imitate lemmings and march in
large herds to their doom.

This works both in bull and bear
markets.

And, because the memories of
some investors are as short as
those of the lemmings, it happens
again and again and again.

Panic Buying of
Investments Today

CNBC writes that panic buying is
likely to drive up stock prices in the
near term.

Stocks could get a short-term boost
as fear of missing out on gains
leads more investors to plow more
money into the U.S. equity market,
analysts said.

The S&P 500 rose more than 2
percent last week, posting its
seventh weekly gain in the last
eight.

The surge in stocks comes as
investors increasingly bet China
and the U.S. will strike a trade deal
in the near future.

It also follows the Federal Reserve
signaling it will be patient in
tightening monetary policy.

The rationale of smart investors
who are buying stocks today is
probably that the trade war will
averted at the last minute and that
the stock market will resume its
upward climb as the Fed backs off
from its interest rate increases.

Unfortunately, as we wrote recently,
we could win the trade war and
lose on investments.

What is important to note in
the CNBC article is that they
project a “short-term boost” and not
necessarily a resumption of a
strong and sustained bull market.

In this regard panic buying of
investments is a bad sign.

Buying shares of companies like
Apple, Amazon, or Microsoft today
should not be compared to buying
silver when the Hunts were
cornering the market or when
everyone went crazy about Bitcoin.

Nevertheless, there are real
concerns about the economy, both
local and global, and particularly in
over-grown and debt-heavy areas
like China.

The Trump tax cut was, in the end,
a bust for hiring and
investment and will have added
another trillion dollars to an
already-huge US national debt.

There may be hope for investment
offshore in places like Brazil simply
because they were hit so badly
when commodity prices collapsed
that they have room to recover and
because they are still a developing
nation with lots of infrastructure
needs.

Take-Home Lesson about
Panic Buying of
Investments

The bottom line of this trip down
memory lane is that panic is not a
viable investment strategy.

Whether you are scared that your
investments will lose value or that
you are missing out on an
opportunity, jumping the gun and
selling or buying in response to a
moment of panic is a bad idea.

Panic buying of investments is a
bad sign for the markets because
this usually leads to an overshoot
in prices which will then correct,
sometimes greatly.

Then the latecomers to an
investment will suffer all of the
damage.

As we repeatedly advise our
readers, doing
routine fundamental analysis of
your investments or investment
opportunities is where to start.

There are certainly times when
investment opportunities arise and
moving quickly is the only way to
make a profit.

But, smart investors limit their
scope of investing to what they
know and pass on getting into
investments that they do not
understand and where they cannot
adequately assess the likelihood of
future profits from increasing cash
flow.

Panic Buying of Investments Is a Bad Sign

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Panic Buying of Investments Is a Bad Sign