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What happens when the markets gets extremely volatile and bearish afterwards?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 377.8 million views in recent years.

In the answers below I focused on the following topics and issues:

  • What happens when markets are extremely volatile?
  • Should we get greedy when others are fearful and vice versa?
  • Do we really need to network in business?

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Source for all answers – Adam Fayed’s Quora page.

What happens when the market gets extremely volatile and bearish afterwards?

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Imagine you are walking up a mountain with a yoyo. The yoyo is going up and down.

You are only focused on the yoyo, so don’t actually appreciate how high you are going.

Maybe once or twice you fall back a few steps, as you aren’t focused on what is going on.

Suddenly you get to the top and don’t realise how high you are:

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That, right there, would be the story of markets over the last few hundred years.

If you adjust for dividend reinvestment, any long-term investor has made a lot of money.

Every $100 invested in 1990 would have been worth about $1,500 recently, and somebody who invested $1,000 in 1945 would have made millions, but has also seen:

  • So many crashes
  • Countless doom and gloom merchants in the media
  • Famines, wars, potential nuclear conflicts, trade spats etc. The news is an endless cycle.
  • An astonishing number of unexpected turns, both on the up and downside.
  • An incredible number of ups and downs.

The point is, the long-term investor who makes the most people doesn’t care about bearish or bullish sentiment.

That is speculation, and usually speculators speculating on what other speculators are speculating about.

The markets were bearish in 2008 and 2020, and then had great runs. There have been other times markets have been bullish and then unexpectedly fallen.

The key is being an investor rather than a speculator, and understanding that markets are prone to these extremes in emotions.

“Be fearful when others are greedy and be greedy when others are fearful”. Heard it many times, but how can someone really know what others do/think?

I think it is usually obvious in extreme, or even relatively extreme times.

During 2008, it was obvious people were fearful:

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That changed and people got greedy once it was obvious that the banks would be saved.

People also got fearful in 2016 due to Brexit and Trump, and many other minor events.

The more extreme year was 2020. When Covid first struck, markets and people were calm.

After the US and several European countries announced lockdowns, there was blind fear.

Markets fell by 50%. That happens from time to time, and isn’t unique, but this time the falls was quicker.

The recovery was so quick that by July and August people were getting greedy:

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Now people are fearful, albeit much less so than 2008 and 2020, and even a bit less than a week or two ago, now some markets have started to recover some of the lost ground.

The best option for the average investor is to put in every month, or year, and accept the ups and downs.

Timing markets really doesn’t work. However, if anything, you should want to invest even more during the bad times.

Your future returns will always be higher in that case, but it is just too difficult to keep money in cash and predict when markets will fall by big amounts.

The problem is, most people get greedy when others are also feeling the same way, so pile in at the top and then get out when there is a fall.

We saw that with funds like ARK. At one stage the performance was incredible:

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So many people piled in, but then got out when the fund was down 50%.

Many studies have shown that the average investor has lost money in the fund, as they bought high and sold low.

Why do we need networking in business?

I remember listening to a famous businessman a few years ago say that you only need six people to hold your coffin in the future:

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The point is that we don’t need to impress many people in life.

Having a small number of key people, like a spouse, true friends, and a reliable business partner, is more important than being close to loads of people.

This is relevant for business networking, and indeed investing.

In business networking, a Harvard study found only 1% is useful:

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The other 99% is:

  • Time wasting
  • Socializing
  • Eating and drinking
  • Pursuing hobbies when you thought you were going for business.
  • Kidding yourself that you are being productive.

I have seen it myself, all around the world. Typically, most people go to golf and chamber of commerce networking events, and it becomes social.

That is fine if you want to go to a social event, but you shouldn’t kid yourself that most networking is useful.

What is more useful is taking advantage of those very small number of opportunities that networking might afford.

If you go to 1,000 events, you might meet a very special person who can help you (and vice versa) on two or three occasions.

Taking advantage of those rare opportunities in networking is more important than just building up a huge number of contacts.

That isn’t to mention that the world has changed. The online world is now more important and gives you access to billions of people.

The importance/the need for networking used to be getting known, in the same way, that cold calling was utilized.

Getting known, and scaling it, is now easier online. You can’t meet a million people at a networking event.

If I want insurance or to buy a car, I will Google or go online. I am more likely to give my business to a random online company or some online personality who I have gradually got to know.

There are more online reviews and there is a clear separation between social and business.

Doing business with people I know in-person is awkward. If something goes wrong and I am unhappy as the customer, the friendship and acquittance is also ruined.

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