Chapter 3


It is an ancient fact of markets that the best investment opportunities are often draped in fear. It was true well before the Rothschilds ruled Europe’s financial markets during the nineteenth century, and one of the banking family’s members supposedly quipped during some long ago war to “buy when there’s blood in the streets, even if it is your own.”

This logic will be true 2,000 years from now. It will stay true as long as stocks, bonds, and derivatives are traded. People who learn to use their fear and that of others will make money while others lose it. This macabre market dynamic will steady you when others panic.

The logic is simple, strange, and sublime. The crowd of investors that animates the financial market always becomes too greedy, or too afraid. Just as surely as thinking about selling paradoxically protects profits, and hopefully saves you from the euphoria that creates bubbles, fear is a bullish aphrodisiac just as surely as greed ultimately ruins the party.

Consider February and March of 2009. Those were the worst two months of the credit crisis that began in 2007. They also marked the start of an historic stock rally that most people missed because the modern financial world seemed to be ending. The subprime credit crisis that began in the United States had wrapped itself around the globe, and was eroding the stability of markets in the United States, Europe, and Asia. Many investors, including some who should have known better, bought what were ...

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