Dec 4, 2020

Blood in the Streets, Parties in the Streets


“The time to buy is when there's blood in the streets.”
- Baron Rothschild

“He should know,” writes Investopedia. “Rothschild made a fortune buying in the panic that followed the Battle of Waterloo against Napoleon.”

Our most recent Waterloo was the Covid-19 pandemic. It certainly created a “blood in the streets” level of panic. Sometime in late March of 2020, the Dow Jones dipped below 20,000 and bottomed out around 18,500. It was the moment Sir John Templeton called the “point of maximum pessimism.” About that time, my friend Bill called and convinced me it was time to start buying.

A contrarian investor par excellence, Bill has made big money buying when people are panic selling and selling when people are “hope buying,” as he puts it. Following his strategies, I bought shares of about two dozen quality companies that were on sale at deep, deep discounts. Most of the stocks were well-known names from the airline industry, cruise line industry and so on. An energy shock a short while later made the prices of even mega-companies like Exxon and BP too good to pass up. I bought those, too. 

At that time, people were mocking the idea there could be a V-shaped recovery — but that is exactly what happened. At the time of this writing, the Dow Jones has fully recovered and surpassed its previous high, breaking 30,000. There are three approved vaccines and one major therapeutic beginning distribution. At some point all of my bargain-basement stocks, like the Dow, will exceed their previous 52-week highs. Several are close, and a few already have.

This raises the question of when to sell. Rothschild didn't cover that one. Bill predicted there will come a moment in 2021 when it will be announced that the pandemic is officially over and everyone will be “partying in the streets.” That will be the time to sell, he said. It struck me as the perfect way to finish the aphorism:

“The time to buy is when there's blood in the streets. 
The time to sell is when there are parties in the streets.”