How Smart Investors Profit During Market Crashes with Apple and American Express

Markets are unpredictable, and lately, they have been in turmoil. This situation prompts us to reflect on the strategies of exceptional investors who not only survive bear markets but actually prosper in them.

In this discussion, we explore the significant wealth accrued by savvy investors who recognize opportunities amidst chaos, particularly when others are panicking.

It's important to recognize that while bull markets bring joy, it is in bear markets where true generational wealth is built.

The largest transfer of wealth in financial history occurs during market downturns, not during periods of growth, as fear grips even the most experienced investors.

Consider the historical gains from major market lows:

• 1932 (Great Depression): +372% over the following five years
• 1974 (Oil Crisis): +76% over the next three years
• 1987 (Black Monday): +62% over the course of three years
• 2002 (Dot-Com Bust): +101% over five years
• 2009 (Financial Crisis): +400% in a decade

These figures highlight the remarkable potential of investing in quality assets when their prices are dramatically reduced.

Contrarian Investment Legends

Warren Buffett: America's Investment Guru

When the financial crisis struck in 2008, many investors rushed to sell their assets, but Warren Buffett took an unconventional route—he was buying. For instance, in September 2008, as Lehman Brothers fell, Buffett invested $5 billion in Goldman Sachs, securing a future profit of around $3 billion for his firm, Berkshire Hathaway. He also invested $3 billion in General Electric under similar advantageous terms.

Continuing his narrative of optimism, Buffett publicly declared his belief in American stocks in a now-famous article, encouraging investments in the U.S. market. Among the stocks he bought was Apple, where he significantly increased his shareholdings when prices dipped.

Richard Rainwater: Master of Distressed Assets

The late Richard Rainwater gained immense wealth through investments in distressed assets during tough economic times. In the early 1990s, amid the Texas real estate collapse, he and partner John Goff formed Crescent Real Estate and purchased properties for just 20 cents on the dollar. They would later sell the company for $6.5 billion in 2007, showcasing impeccable timing just before the next downturn.

After the internet bubble burst, Rainwater identified another investment opportunity by acquiring shares in undervalued energy companies while the market was still reeling from losses.

Andrew Beal: The Banking Visionary

Andrew Beal demonstrated a patient and strategic approach to bear markets. During the early 2000s housing boom, while many banks were aggressively lending, Beal chose to conserve capital. By reducing his loan portfolio significantly, Beal positioned himself advantageously for when the 2008 financial crisis occurred. He purchased distressed loan portfolios at a fraction of their value, which dramatically increased his bank's assets within months.

Stocks Worth Watching During Bear Markets

Lessons from Past Market Downturns

When examining past bear markets, numerous companies presented lucrative opportunities:

• Apple AAPL: Following the dot-com collapse, Apple shares were valued at around $7 (adjusted for splits) in 2003. Holding on to that investment would have yielded over 35,000% returns today.
• Amazon AMZN: Amazon's shares plummeted to about $6 from over $100 in 1999. Those who purchased at that time would have seen returns exceeding 50,000% as the e-commerce sector boomed.
• Microsoft MSFT: The tech giant's stock also suffered during the bubble, dropping from $60 to $20. Investors who saw this as an opportunity continued to benefit from significant long-term gains.

Opportunities from the Financial Crisis

The 2008-2009 financial crisis yielded even more compelling investment chances:

• American Express AXP: During the crisis, Buffett increased his stake in American Express when its stock dropped below $10. The price has since surged to over $200.
• Bank of America BAC: Buffett's $5 billion investment in Bank of America preferred stock has appreciated significantly, now valued at over $30 billion.
• Las Vegas Sands LVS: When its stock fell from over $140 to under $2, investors who recognized the value in its Macau operations enjoyed impressive gains as the stock rebounded to over $80.
• Ford F: Ford's stock dropped below $1 during the crisis, but those who invested watched it rise to more than $18, achieving a return of over 1,700% within a few years.

Developing a Contrarian Investment Mindset

The successful investors differ from the average person not only in their analytical skills but also in their psychological resilience. They consistently maintain a few key principles:

1. Patience: They conserve cash reserves during prosperous times to prepare for future opportunities.
2. Independent Thinking: They focus on underlying business fundamentals rather than market hype.
3. Conviction: Once convinced a stock is undervalued, they buy actively.
4. Long-Term Perspective: They prioritize value over precise timing in the market.

While it is uncertain when the next bear market will arise, history shows it will happen, presenting extraordinary opportunities for those ready to act.

Here are steps to prepare:

1. Create a “bear market shopping list” of companies you'd like to invest in at lower prices.
2. Identify your “dream prices” for these stocks when they become appealing.
3. Set aside funds specifically to capitalize on bear market interests.
4. When the next downturn occurs, draw inspiration from renowned investors and take decisive action.

As Richard Rainwater once remarked, “Money is made when things are going from terrible to only bad.” This mindset reflects the approach many successful investors will take when facing future market challenges.

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