The investment activity of the average investor is inversely proportional to the level of fear in the market. When fear is low, investors are seen very actively making investments. And, when the markets are gripped with fear, the average investor takes to masterly inactivity. Even those with the best of advisors usually follow the same rhythm. Even the investment industry solicits business most aggressively only when there is little fear in the mind of the investor. History has ample evidence that investments made during the complete absence of fear have not really worked as well as those made when markets were gripped by fear. Investors need to learn to prepare their capital for the times of fear. While individual stocks or sectors may be periodically gripped by fear, the whole markets experience that phase less often. Channeling capital into investments where there is fear all around is hardly easy. Investors need to do just this- channel their capital sensibly and use the phase of fear in individual stocks, specific sectors and the whole market. Each present a specific investment opportunity and mixing them up will also not help one’s investment deliver. To achieve this, every investor must keep his money in a state of readiness.
Fear is overdone concern that prevents investors from taking constructive action when they should. – Howard Marks