An oft invoked Wall Street phrase of investors who are waiting for some sort of large drop in the markets so they can buy in at a low point is “Buy when there’s blood in the streets.” But I’ve always wondered: What if there’s only yelling in the streets? In other words, what if it doesn’t get as bad as folks think it should? Or in the case of investors who are waiting for a great opportunity before they invest, what if it doesn’t get as bad as they would like?
How long should one wait for this dire circumstance to materialize? Do you wait for a 10% drop, a 20% drop, a 50% drop? Do you maybe wait for a month or two or a year or two? Do you wait until the next election or the next geopolitical crisis or the next central bank meeting?
We often hear stories about people who made a great investment by buying something at a point of great distress but it seems we hear less about people who failed dramatically at this same task. We probably hear even less about people who did nothing during times of distress and simply carried on with their investments.
One can sit around and wait and try to time when to invest one’s money, but the opportunity costs are the chance for your investments to accrue dividends and appreciate in value. Over long periods of time, missing out on these could significantly reduce your ability to build wealth.
So if you’re waiting for the markets to hit a low point before you invest, you may want to understand exactly what it is you’re waiting for, because things may get bad, but not as bad as you’d like.