“Buy when there’s blood in the streets” – Baron Rothschild
During the Panic of 1871 in Paris, when everyone was selling, Baron Rothschild (according to the story) was buying. This makes a lot sense, but it’s hard to translate into action due to the emotional aspect of investing and losing money; not to mention the media bombardment we all must endure daily.
This has been a rough week for the markets; especially emerging markets. I wanted to share a conversation I had with one of my clients yesterday as a practical example of how smart, wealthy people think.
We had a bond get called in my client’s portfolio so there was $50,000 that needed a new home. I had my bond trader look into a replacement and he found a nice bond that fit all of our criteria. Next, I ran my clients portfolio thru the asset allocation software that compares his actual holdings against the recommended allocation (based upon my client’s Investment Policy Statement).
The recent market conditions had affected his portfolio allocation enough to where the software was recommending we invest the $50,000 of cash primarily in emerging market stock funds. Everything in the news all week has been about China (an emerging market country) and how investors across the globe are fleeing in droves.
I called my client and gave him all of this information and asked him what his thoughts were. Without hesitation, he said he wanted to purchase the the beaten down emerging market stocks, not the replacement bond.
That’s how you do it! I hope this example helps provide a healthy perspective.