The time to BUY is actually when shares have been beaten down by the market.

Why the panicking crowd has got it wrong
– again – and how you can profit

Let's face it, even the most optimistic analyst would say that the volatile conditions of 2011 are likely to continue over the next year or two.

Whatever our politicians might hope for, the eurozone's problems of high national debts and a tepid economic recovery aren't going to go away any time soon.

So, what's an investor to do?

Sadly, history already tells us what many investors are doing: cutting and running, deciding that the stock market isn't for them, and taking their losses on the chin.

Research shows that time and time again, private investors pile into equities at too high a price...when shares have already shot up way too far... And they get out at a price that's too low... often just before they start to recover again.

If that's not wealth-destroying, then I don't know what is.

For example, UK investment author Tim Hale has pointed out that in 1984-2002 – a bull market when the equity markets turned $100 of spending power into $500 – private investors turned that same $100 into just $90⁸.

A 2007 study of UK investors over the period 1992-2003 found that the returns of private investors were around two percentage points a year lower than the funds that they were invested in...⁹

These feeble returns are all thanks to the fuzzy thinking of a crowd that follows their emotions, rather than using clear-headed analysis.

They wrongly believe that you buy shares when they're going up and you get out of the market when they're hitting rock bottom.

Here's why this is wrong – in fact, the time to BUY is actually when shares have been beaten down by the market.

That is, of course – if you know what to look for...

https://www.fool.co.uk/shop/secure/order-01.aspx?dc=ccd70129-62cb-417b-a440-99de3c029d1a&sf=0512_hb_plndr_L1&pd=07&source=u74spoeml0000189

Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

If I can’t convince you that a market downturn is no reason to panic, maybe the world’s greatest investor can. In his 1997 letter to Berkshire Hathaway shareholders, Warren Buffett wrote:

A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
The next time the stock market takes a tumble, remember Buffett’s advice. And then go out and buy yourself some hamburgers!

What to Do in a Down (Bear) Market?

The stock market often falls under the conditions of the so called bull and bear markets.  Intelligent investors are well familiar with the conditions of both and know exactly what to do. 

Under a down market you have several options.

- One of them is to sell immediately in order to minimize your losses.

- Another option is to let the market work its way through the problem with no action from your side.

- A third option is to benefit from the stock decline and add some more to your portfolio. But, this should be done only if you don't perceive that there is something wrong with the company that has led to the stock decline.


Final Piece of Advice

Never forget that it is important to base your decisions on knowledge not on feelings. This means that being educated about the company and the industry from which your stocks come from, the market conditions under which you operate will be of small importance to you.

3 Stages of a Bull Market and 3 Stages of a Bear Market

2011 Value Investing Congress Notes
http://www.scribd.com/doc/54958483/2011-Value-Investing-Congress-Notes

The swing of the pendulum 
o Constantly going between greed and fear, risk tolerance and risk aversion, and optimism and pessimism
o In theory, the pendulum should be at the happy medium

 On average it is in the middle 
 But it spends little time there
 Excesses constitute the errors of herd behavior

 3 stages of a bull market 
 Few people feel things are getting better
 Most people realize improvement is taking place
 Everyone thinks things will get better forever
 "What the wise man does in the beginning, the fool does in the end."
o The last buyer pays the price 

 3 stages of a bear market 
 Few people realize that things are overpriced and dangerous
 Most people see the decline is underway
 Everyone believes that things will get worse forever
o Great opportunity to buy if we can behave counter-cyclically - Importance of being a contrarian.



Ben Claremon: The Inoculated Investor http://inoculatedinvestor.blogspot.com/  

How to Shortsell, Trade Example

Let's take a look at a trade made during this "TOUGH" market!

The Stock Market is Falling, How I trade Down Markets.

Trade with the trend.

Keep these 113 words of Graham close at hand and let them guide you throughout your investing life.

The true investor scarcely ever is forced to sell his shares, and at  all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more.* Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.†

* “Only to the extent that it suits his book” means “only to the extent that the price is favorable enough to justify selling the stock.” In traditional brokerage lingo, the “book” is an investor’s ledger of holdings and trades.

† This may well be the single most important paragraph in Graham’s entire book. In these 113 words Graham sums up his lifetime of experience. You cannot read these words too often; they are like Kryptonite for bear markets.  If you keep them close at hand and let them guide you throughout your investing life, you will survive whatever the markets throw at you.