Maths of Crisis Investing. Aim for extraordinary wealth building. Must be prepared.

How to deploy your cash during a crisis?

One mistake I've seen investors make is going all in too early.  They see prices fall 20% and think they've found the bottom. They deploy all their cash. Then prices fall another 30% and they have nothing left to buy at the truly bargain levels. 

The solution is to scale into positions gradually. Don't try to call the exact bottom. Nobody can do that consistently. 

Instead, plan to deploy cash in trenches as prices fall. For example, 

• you might deploy 10% of your cash when prices fall 20% from the peak. 
• another 15% when prices fall, 30%, 
• another 20% when prices fall, 40%, and so on. 

This approach ensures that you're buying more at lower prices. 

If prices keep falling, you have cash left to take advantage. If prices reverse, you've already established positions that will benefit from the recovery.

I followed this approach in 2008 and 2009. I started buying when the crisis began, but reserved most of my capital for later. As prices fell further, I deployed more. By the time we reached the bottom, I had made significant investments but still had powder left for opportunities that emerged in the following months. 

What to buy first?

Another consideration is what to buy first. During a crisis, almost everything goes on sale. Stocks, bonds, real estate, private businesses. You can't buy everything. You have to prioritize. 

My priority is always quality first. I'd rather buy a great business at a good price than a mediocre business at a great price. The great business will recover and compound for decades. The mediocre business might never recover or might recover slowly and then stagnate. 

So I start by looking at the best businesses, the ones with the strongest competitive positions, the most capable managements, the most resilient business models. If those businesses are available at attractive prices, that's where I deploy capital first. 

Only after I've invested in the highest quality opportunities do I consider lower quality businesses that might offer higher potential returns, but also higher risk. These can work out spectacularly. But they can also fail entirely. I size these positions smaller and only pursue them after the core portfolio is established.

https://www.youtube.com/watch?v=Xv9TV-dI7z4

Warren Buffett: Why 2026 Will Be the Best Buying Opportunity Since 2009

Summary of Investment Strategy During a Crisis

The article outlines a disciplined approach to deploying cash during a market downturn, emphasizing patience, gradual investment, and a focus on quality. Key points include:

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1. Avoid Going “All In” Too Early

• Common Mistake: Investors often use all their cash after an initial market drop (e.g., 20%), leaving them unable to capitalize on deeper declines.

• Solution: Scale into positions gradually as prices fall, rather than trying to time the exact bottom. This ensures capital is preserved for true bargain levels.

2. Deploy Cash in Trenches

• Example Strategy:

  • 10% of cash deployed after a 20% decline from peak.

  • 15% more after a 30% decline.

  • 20% more after a 40% decline, etc.

• Benefits:

  • Buys more at lower prices if the downturn continues.

  • Maintains “dry powder” for future opportunities.

  • If markets recover early, positions are already established to benefit.

3. Prioritize Quality Investments

• Focus on Quality First: Invest in high-quality businesses with strong competitive positions, capable management, and resilient models, even if the price is only “good” rather than “great.”

• Rationale: Quality businesses are more likely to recover and compound value over decades.

• Higher-Risk Opportunities: Consider lower-quality, higher-potential investments only after building a core portfolio of quality assets, and size these positions smaller.

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Discussion

The article provides a pragmatic, risk-managed framework for crisis investing. Its core principles—gradual deployment and quality-first selection—reflect lessons from historical crises like 2008–2009. By avoiding impulsive, all-in bets, investors can reduce regret and remain agile. The emphasis on business fundamentals over sheer cheapness aligns with long-term value investing philosophy, where durability matters more than short-term price movements. This approach balances opportunity capture with psychological discipline, making it suitable for investors seeking to navigate volatility systematically.

Charlie Munger's wisdom on crisis was profound.

The big money is not in the buying and selling, but in the waiting

Charlie Munger:   Own things you understand. Maintain adequate liquidity and let compounding do the heavy lifting.

Charlie Munger's wisdom on crisis was profound. "The big money is not in the buying and selling, but in the waiting" What he meant is patience is the investor's greatest asset. You wait for the right pitch. You wait for a crisis when prices are attractive, then you swing hard. Charlie also believed that most of what passes for sophisticated investing is actually just sophisticated gambling. He had no patience for complexity, for trading, for trying to be clever. He believed in buying wonderful businesses at fair prices and holding them forever. During crisis, Charlie would remind Buffett to think about what the business will look like in 10 years, not what the stock price will do tomorrow. He'd say, "If you are not willing to own it for 10 years, don't own it for 10 minutes."

Focus on business fundamentals rather than market gyrations

That perspective kept them focused on business fundamentals rather than market gyrations. Charlie Munger also understood the value of inversion. Instead of asking how do I succeed, he'd ask how do I fail? Then, he systematically avoid those failure modes. For crisis the failure modes are obvious. Using leverage, panicking and selling at the bottom, speculating rather than investing, trying to time things perfectly. Avoid those mistakes and you will do just fine.

Never interrupt your compounding unnecessarily

One more thing Charlie taught Buffett. The first rule of compounding is to never interrupt it unnecessarily. Every time you sell during a panic, every time you switch strategies, every time you try to get clever, you interrupt your compounding. The people who get wealthy are the ones who set up a sensible strategy and then stick to it through multiple market cycles.



After you build your first million ....

If you build your first million, congratulations, you have done something many have never achieved. You have developed the discipline, the temperament, and the knowledge that separates successful investors from everyone else. Now your opportunity is to accelerate your journey to your second million by capitalizing on crisis. And, crisis will come. They always do. The question is whether you'll be prepared to take advantage or whether you'll panic like everyone else.

Take advantage of crisis

The 3 strategies shared by Buffett:

• Buying wonderful companies at crisis prices
• Upgrading your portfolio during dislocations
• Building cash before the storm to deploy during the panic.

These are not complicated, but they require discipline, patience, and courage. They require discipline to build cash during the good times when it feels like you're missing out. They require patience to wait for the right opportunities rather than chasing everything that moves, and they require courage to act when everyone else is paralyzed by fear.

If you can do these things, if you can stay rational while others panic, if you can see crises as opportunities rather than disasters, you can build your second million much faster than you built your first.


Crises accelerate the transfer of money from the impatient to the patient by the stock market

Remember, the stock market is a device for transferring money from the impatient to the patient. Crises accelerate this transfer. The impatient panic and sell at the bottom. The patients stay calm and buy at the bottom. Over time, this difference compounds into enormous wealth. The next crisis is your opportunity. Prepare now, by building cash.

This is the opportunity facing you today. You could be at the forefront of the largest gains when the tide turns.

Sure, there may be volatility in the market for some months ahead. Years even. But this should NOT stop you from taking control of your financial destiny.

Your money might survive being mothballed in a bank account, gathering a feeble 1% or 2% per year. But unless you can get a pay rise or a windfall sometime soon, nobody is going to help you grow your wealth in the many alternatives available.

At some point, the markets will rise again, and – in our view – those who are already invested in rock-solid shares should make serious gains.

I'm old enough to remember all sorts of stock market crashes and periods of underperformance -- the causes and durations of which are long since lost in the mists of time.

What I do know is that markets eventually recover, and carry on heading upwards – carrying our stocks, and investment wealth, with them.

This is the opportunity facing you today.

You could be at the forefront of the largest gains
when the tide turns

The majority of private investors are too scared by what happened in the last few years to invest right now.

But looking backwards and doing nothing is not the way to take control of your financial destiny.

Think of it this way. You'd be crazy to drive your car whilst spending all of your time looking in the rear-view mirror.

And yet many people invest like this. They assume that because 2011 was a tough year for the world's stock markets, 2012 will be just as bad.

But the financial world doesn't work that way, especially the stock market. The past is... well... history.

The tide turns when everyone least expects it. The more obvious the market's direction seems, the greater the odds that you're wrong.

As Floyd Norris of The New York Times has pointed out that, for the past half-century, the market has moved in 15-year cycles where returns swing from spectacular to near-zero.

In 1964, the average real return over the preceding 15 years was a stellar 15.6% a year.

Then it flipped. By 1979, the previous 15 years produced a negative real return.

Then it flipped again.

By the late 1990s, 15-year average returns were near record highs. And again – as of the end of last year, stocks returned a measly 3% a year over the last 15 years.

The trend is clear: After booms come busts, and after busts come booms.

Sound crazy? It sounded crazy in the early 1980s, too.

So did the notion 10 years ago that we were about to face a decade of stagnation.

That's always how these things work. After booms come busts, and after busts come booms. Happens over and over.

Of course, history isn't guaranteed to repeat itself. And what drives stocks to a decade of low or high returns isn't the calendar: it's valuations. Stocks do well after they're cheap, and poorly after they're expensive. So the real question shouldn't be how long stocks have been stagnant, but whether they're cheap.

And right now we believe they are.

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

Crises Equal Opportunities - History Makes Money

 
What $10,000 invested at times of various historical calamities would be worth today?
 
In 1962, the missile crisis brought us close to World War III.  At that time, if you had invested $10,000, the value today would be $156,661.
 
In 1965, we bombed North Vietnam and were attacked in the Gulf of Tonkin.  The value of $10,000 invested then would now be worth $109,602.
 
In 1968, there was a six-day war in the Middle East and five days of rioting in Detroit, the value of $10,000 invested then would now be worth $87,429.
 
In 1980, Iran was holding American hostages, the value of $10,000 invested then would now be worth $48,700.
 
The recession in 1982 caused the market to hit 730 in August and by February the following year the market was up 57 percent to 1150.
 
On October, 1987, the country saw the most severe drop in market history.  $10,000 invested at the bottom of the market on October 20 would be worth approximately $24,000 today.
 
These down markets caused by crises events are opportunities only if you have cash available to seize the opportunity of the moment of the down markets.  If you are caught fully invested in stocks when these events occur and your quality stocks go down, ride them out and stay fully invested as the market always recovers and given time, eventually heads to new record highs.


http://www.sap-basis-abap.com/shares/history-makes-money.htm

Crisis Events, DJIA Declines and Subsequent Performance

In any crisis, there will be opportunities.

How to value these companies' businesses today? This will be difficult. The earnings for the next few quarters will need to be tracked. Past earnings are historical and due to fundamental changes in the businesses of various companies, assessing the value of these companies based on historical earnings will be unwise.

However, some companies can be anticipated to do not too badly. These are traditionally in the defensive sectors of food and beverages, gambling, healthcare and utilities.

For other companies, particularly in the industrial, plantations, tradings, construction, and housing sectors, the future earnings will be difficult to project with any degree of certainty at present.

Yes, some of these companies might have been oversold in the general negative sentiment of the present market but one can only be very certain of this when the results of the next few quarters are known.