The idea of making a fortune by investing at the bottom of a crisis is often glorified, fostering the belief that wealth is built by timing market downturns with precision. Stories of investors who seized opportunities during market collapses create the illusion that waiting for the next major crisis—and deploying capital at exactly the right moment—is the key to success.
While having cash during a crisis is essential, it is ineffective without the conviction to invest.
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The saying “Cash combined with courage in a time of crisis is priceless” captures this sentiment, but the reality is more nuanced. True opportunities do not arise solely in moments of outright collapse. Periods of uncertainty and confusion—when valuations are favourable but sentiment remains weak—often present better investment prospects.
The myth of market crises
Market crises are rare.
Over the past four decades, only five or six major ones have occurred—the market downturn of the 1990s, the Tech Bubble in the early 2000s, the Global Financial Crisis of 2008, and the Covid-led crash in March 2020. Waiting on the sidelines for a perfect crisis can be detrimental to long-term compounding.
Timing the exact market bottom or top is impossible—such moments become clear only in hindsight. While it may seem obvious in retrospect that past crises presented strong buying opportunities, each downturn, when it occurred, felt unprecedented and severe. The prevailing fear in every crisis was that the market might not recover for years.
For a market correction to qualify as a true crisis, it must be unique and unforeseen. While history repeats itself, market crashes rarely occur for the same reasons twice. Once an antidote to a particular crisis is known, that event is unlikely to repeat in the same form.
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Future market declines will be driven by different, unpredictable factors, creating the perception that “this time is different,” and leading many to believe that recovery will be long and uncertain.
Investing in confusion vs waiting for clarity
Earning above-average returns does not require waiting for a crisis or attempting to time the perfect market bottom. Investing during periods of market confusion—when valuations are favourable—can generate strong medium-to-long-term returns.
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Periods of confusion present attractive investment opportunities precisely because uncertainty keeps many on the sidelines. Waiting for complete clarity often means missing out on the best entry points. By the time conditions appear stable and predictable, valuations have typically adjusted, requiring a significantly longer investment horizon to achieve high returns.
Investing during confusing times offers a more favourable risk-reward tradeoff, allowing for meaningful gains even within a medium-term horizon.
The role of conviction
Investing in uncertain times requires conviction—a firm belief in the long-term potential of equity markets, economic growth, and structural advantages such as demographics and policy shifts.
Conviction is tested most when uncertainty is at its peak, and markets appear volatile. The ability to stay invested when others hesitate is a key differentiator in long-term wealth creation.
Understanding market corrections
A market correction is essentially a return to fair value. When valuations fall to extreme lows, a subsequent recovery to intrinsic levels is a natural process.
Markets tend to be mean-reverting, moving back toward their long-term averages over time. Recognizing this characteristic can help investors take advantage of mispriced assets during volatile periods.
Sizing during confusion
Rather than focusing solely on investing during crises, “sizing during confusion” plays an equally crucial role in wealth creation. Capital allocation should be meaningful—small investments in high-return opportunities do not build substantial wealth, but strategic, sizable allocations to reasonable-return opportunities do.
Sizing is closely linked to confidence, which in turn is inversely related to volatility. Reducing interim volatility allows for larger capital deployment with greater certainty. One approach that helps achieve this is Dynamic Asset Allocation, a strategy that balances risk and return. While it may not always generate the highest possible returns, it smooths out market fluctuations, enabling investors to deploy capital more effectively.
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Dynamic Asset Allocation serves as a powerful tool in preserving and growing wealth, ensuring that investments remain resilient through cycles of uncertainty.
Manuj Jain is a CFA charterholder and co-founder at ValueMetrics Technologies.
