Written by Nathan White, CFA

photo by caspermoller

“Tread carefully” is the mantra for this market because one day you are tempted to sell everything and run for the hills, and the next day you can’t believe what a great buying opportunity it is! In this environment it is best to identify quality assets, let the price come to you, and do it in small increments. Placing a large bet can lead to quick insolvency, and many are tempted to put too much capital at risk. On the other hand if you don’t buy anything as the market goes down you are also throwing away a tremendous opportunity.

These are truly amazing times. There is so much irony and doom and gloom, it can make your head spin. The smart investors are buying. For example, Warren Buffet with his smart savvy hedge funds, and I can’t believe I am going to say this, the government!

There are so many quality assets on sale, but the irony is when everyone is panicking even those assets continue to fall. Smart investors, because they have never overextended themselves during boom times, are able to take advantage of these deals and wait out the short-term volatility. That is the irony of economic busts, deals abound but the majority of investors don’t have the capital to take advantage of it!

Consider real estate. Now is the time to buy. As a buyer you can negotiate some unbelievable deals, but only if you can get a loan, which is almost impossible for anyone right now. Unless you have the cash on hand, it is nearly impossible to take advantage of the situation.

The same is true in the capital markets right now. There are great deals on quality assets, but no one can buy unless they have cash because banks aren’t lending. That is why you only see the likes of Buffet, certain hedge funds, and the government being able to buy assets in the current environment.