Fear Versus Intelligent Investing

Dec 29, 2022

As always there seems to be a lot of fear being spread out there in the media. That’s how they captivate their audiences and make money. There is certainly a lot going on, but does fear have a place for investors? How do intelligent investors act during uncertain times?

Should We Be Afraid? 

Should investors be fearful right now? If so, what should we be afraid of? 

Fear, and especially worry, serve very little purpose. They rarely help. In fact, fear probably results in far more harm in itself, than what people are afraid of in the first place. 

That does not mean that we should not strive to understand the market and its cycles, while having a healthy respect for what’s happening. Just like an MMA fighter cannot walk into the octagon and expect not to get blows thrown at them. It is going to happen. They need to have a clear understanding of that, and appropriately block and maneuver and strike. If they just cower in their corner they are 100% going to lose. Yet, if they put on a good offense, they are less likely to take hits, and have a chance of winning. 

Idle Capital

Following on from the above example, idle capital sitting on the bench is counterproductive. You miss all the shots that you don’t take. 

In general, this type of reaction is going to cause exactly the results that investors are afraid of. Just as we have panic sell offs in markets. Just like 96% of S&P 500 stocks diving after the latest Fed rate hike. 

Willingly just taking blows to the face when you can’t win may be foolish. Yet, if there is one thing investors probably should fear right now, it is just sitting on idle capital and being frozen into inaction. 

With current extreme real inflation, that probably means you are losing 30% of your capital each year, with zero upside potential. It’s better to go to Vegas and throw it all on black, on one spin of the roulette table. At least you’ll have a slim shot of coming out ahead. 

Objective Investing Is Intelligent Investing

Don’t be ruled by your emotions. Especially not when it comes to business and money. We’ve all heard that famous Warren Buffett quote, “investment is best when it is most businesslike.” Or “when others are fearful, be greedy.”

When others are fearful, it produces fantastic opportunities. It means more motivated sellers, more negotiability, and the ability to negotiate the best prices and terms. That’s the time to go into acquisition mode. At least providing you are adhering to the other timeless principles of investing. 

Pragmatic Optimism

My team calls me a ‘pragmatic optimist’.

Believe me, I’ve seen the ugliest side of the markets, housing, and mortgage industry. I know how bad it can get. 

I’m not bulletproof, but I also know my cycles, invest in the best real data, and advisors. 

I am very realistic about the risks in the markets. I believe in having a sound awareness of just how bad things can be. Yet, compliment that with looking at the positive opportunities that even those things create. I’ve found it the best way to continue to thrive, no matter what happens out there. 

While who you invest with is still the most important factor, for those who are fearful I recommend looking at, and evaluating individual investment opportunities on their own merits. 

What downside protection do they provide? What upside potential is there? What is the best and worst case scenario? How much of my portfolio is it reasonable to expose to that given the risk adjusted returns being offered?

Be aware, be informed. Don’t let the media cause you to make emotional mistakes for their own profit. Take positive action where the opportunities are. 

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund.

Photo by Felix Mittermeier on Unsplash