Two Secrets from History for Corona Investors
by Ras Vasilisin
Want to be a successful investor? Become a student of history.
Someone once said that the best thing to happen to a person early in life is to lose all his or her money. If that’s true, I’m very lucky because I lost money many times in discretionary trading. The reason? I had all the behavioral biases, I was overconfident, and I took too much risk.
The problem is that most people don’t get the opportunity to experience these life lessons. That’s why when markets crash they end up doing what everyone else is doing — either panic selling or sitting on their hands until it’s too late. The few people who come out on top are the ones who approach the markets thoughtfully and take action at the right time.
If you fall into the first group, there is a lot you can learn from the past. History’s timeless lessons will give you the ability to build new skills and frames of mind that will help you succeed in the future.
Though the corona crisis is nothing to joke about, its economic impact may open the door for strategies very different from the ones that worked during the bull market we had for so many years.
Here are my two major lessons from history:
1. Follow the smart money.
The term “smart money” usually refers to Wall Street banks, and hedge fund managers who move billions of dollars in client money.
There are about 20 funds that control 80 percent of the world’s trading. They have trillions under their management and employ the smartest individuals.
These funds are controlled by savvy investors like Warren Buffett, Ray Dalio, Seth Klarman, John Paulson, Howard Marks, and Bill Ackman, to name just a few of the smart money people.
Their timing is perfect. These insiders usually exit a position just as the party’s ending, while the dumb money continues to pour in. And vice versa when the trend is going the other way.
So, if you think the market is rigged against you, you’re right!
The question is, how do we find out when the smart guys start buying?
The number one tool you can use is the 13F report. These are quarterly reports filed by U.S. money managers with at least $100 million in assets under management. They detail all the stock holdings of each particular money manager.
My favorite website for checking out the portfolios of these “whales”, or big players on Wall Street, is Whalewisdom.com. Just type the name of your favorite whale and you can instantly browse their most recent holdings.
But that’s not all. Because of the required 45-day delay in reporting, 13Fs might not be able to tell you right away where the whales are buying their giant blocks of shares. Unfortunately, 45 days is a long time to wait for information about the financial markets.
That’s why I like to pay attention to volume, or the number of shares traded in an asset during a given period of time.
If any one asset has a sudden 150 percent pop in volume there’s a good chance the smart money is piling in. And if you catch these volume spikes, you will get ahead of the rest of the market.
The lesson: Follow the savvy investors, and one day you might outsmart them at their own game!
2. The majority is always wrong.
Secret number two is not to listen to the media. Why? Because most of the financial information that the media presents is wrong.
Remember the last crash? What kind of stories were you hearing from the media? In 2009 all you heard was recession, depression, negative GDP, unemployment. Fear, uncertainty, and doubt (otherwise known as FUD) was the core of every message.
Guess what? Almost everyone who watched the news in 2009 dumped their holdings.
But at the same time, savvy investors were buying. Take a look at the chart below. At the peak of FUD and unemployment in 2009 the stock market went up more than 60%. The smart money started buying.
One of my favorite quotes by Mark Yusko is, “Investing is the only business where when things go on sale everybody runs out of the store.”
A recession doesn’t necessarily mean all gloom and doom. A recession, depending on how you define it, is really just a slowed down economy. The last 12 recessions have lasted between six and thirty months, but they have never resulted in the end of the world.
Smart money always buys at a discount regardless of what the media says. The whales buy when nobody else wants to. To paraphrase Baron Rothschild, they buy when there is blood in the streets.
The bottom line is that pessimism is your friend and euphoria the enemy in investing. So don’t stay on the side of the majority. When it comes to high return investing, the media and the majority are always wrong.
This is what history teaches us about the secret of wealth building. As Winston Churchill put it so eloquently, “Those who fail to learn from history are doomed to repeat it.” This is all you have to do to avoid making costly mistakes.
The facts are that five percent of investors achieve extraordinary returns. Do you want to be part of the five percent who get high returns, or the 95 percent who don’t?
The choice is completely yours.
Ras Vasilisin is the founder and CEO at Virtuse Exchange, a multi-asset platform that allows investors in more than 100 countries to trade crypto and traditional assets.
