Buying During Crash - The Execution!

Based on this live stream transcript, here is a detailed educational summary of the key investment lessons presented by the speaker, often referred to as Mr. Loo or the 1M65 figure. The core topic is a strategic framework for investing during market crashes.

Core Philosophy & Mindset

The speaker emphasizes that successful crash investing is 90% psychology and preparation, and only 10% execution. The goal is not to pick the exact market bottom (which is nearly impossible), but to participate constructively without being paralyzed by fear.

• Emotional Neutrality is Key: The ability to act without panic during extreme fear is the ultimate skill. This is achieved through rigorous preparation.

• It's Okay to Miss Out: Not every crash needs to be caught. Crashes are regular events (every few years). It's better to miss an opportunity than to invest unprepared and lose money, which can take years to recover from.

• Preparation Over Precision: Wealth is built by staying patient, being prepared, and executing a plan during a few major crashes over a lifetime, not by perfectly timing every dip.

Essential Prerequisites (The "Preparation Work")

Before any crash buying, the speaker stresses three non-negotiable foundations from his earlier lessons:

1. Financial Safety Net: Have secure, essential living expenses covered. Do not invest money you cannot afford to lose. He highlights not touching your CPF Special Account (SA) in Singapore, as its guaranteed ~4% return is a risk-free safety net.

2. "Dry Powder" Ready: Have liquid capital set aside specifically for buying during crashes. His recommended place for this in Singapore is the CPF Ordinary Account (OA), as it earns interest (~2.5%) but can be deployed quickly. Money market funds are another option.

3. Psychological Readiness with a "Heavier Hammer": This is a core concept. You must build conviction in your investment (e.g., a broad index like the S&P 500) over time by studying its long-term growth. This conviction is your "hammer." The more you learn, the "heavier" it gets, allowing you to "slam" buy with confidence when others are fearful.

Crash Buying Execution Methods

The speaker outlines three primary methods, recommending a combination of the first two.

Method 1: The Spread-Out Mechanical Method (Easiest, Lowest Error Rate)

• Concept: A systematic, dollar-cost-averaging-down approach that removes emotion.

• Execution:

  • Do nothing until the market falls 10% from its peak.

  • At -10%, take a small initial position.

  • For every further 2.5% to 5% decline, trigger another buy. Crucially, each subsequent buy should be larger than the last. (e.g., -12.5%: bigger buy, -15%: even bigger buy).

  • Crashes of 20-30% are historically rare but offer the highest potential returns. Your largest purchases should be in this zone.

  • Once your allocated "dry powder" is spent, STOP. Walk away. Delete your broker app if you must. Do not look at the market. Accept that prices may fall further; you will not catch the absolute bottom.

• Pros: Emotionally manageable, repeatable, guarantees participation.

• Cons: Arbitrary trigger points, may not maximize returns as buys are spread out.

Method 2: The Signal-Based/Skill Method (Higher Reward, Higher Difficulty)

• Concept: Use historical analysis and economic signals to identify a potential bottom zone, then deploy a large portion of capital at once.

• Execution:

  • Study past crises (e.g., 1970s inflation, 2008 Financial Crisis) and look for similar patterns in the current event (e.g., he used this to buy heavily in July 2022 by comparing it to the 1970s).

  • Look for clear policy responses (e.g., Fed printing money in March 2020).

  • When signals strongly align, act decisively with a large sum.

• Pros: Can lead to superior returns by concentrating capital near a bottom.

• Cons: Requires significant skill and analysis. Signals are noisy, timing windows are narrow, and hesitation means missing the opportunity.

Method 3: Other Common Methods (Generally Not Recommended for Most)

• Time-Based DCA: Buying fixed amounts weekly/monthly during a crash regardless of price. Effective but ignores market severity.

• Volatility Trigger (e.g., VIX Index): Buying when a "fear index" hits an extreme level. Difficult to execute due to noise.

• Portfolio Rebalancing: Selling bonds (which may rise in a crash) to buy more stocks to maintain a target asset allocation (e.g., 60/40). Mathematically sound but complex to monitor.

• Sentiment-Based ("Blood in the Streets"): Buying when panic is at its peak (Warren Buffett's style). Extremely difficult emotionally.

Key Practical Details & Q&A Highlights

• What to Buy: Only broad-based, low-cost index ETFs (e.g., S&P 500, NASDAQ, MSCI World). He does not buy individual stocks. This provides diversification and aligns with the "heavy hammer" conviction in the overall market's growth.

• Reference Point: Calculate the crash percentage from the all-time high.

• Brokerage Choice: Prefers financially strong, reputable institutions (mentions Standard Chartered, Interactive Brokers, Endowus). Advises caution with newer platforms.

• Deploying CPF: CPF OA can be used for certain ETFs (like S&P 500 clones), but not for all (e.g., NASDAQ may require specific European-domiciled ETFs or cash).

• If the Market Doesn't Recover Quickly: This is why the financial safety net is paramount. If you need the invested money within a few years, you shouldn't be in the market. Historical crashes have taken years to recover, but with a safety net, you can wait.

• After the Crash: If you have dry powder left after a recovery, simply wait for the next crash opportunity. Do not force investments.

Final Takeaway for the Investor

The speaker's system democratizes crash investing by focusing on process over prophecy. The most critical step is your personal preparation—building your financial buffer, setting aside capital, and most importantly, educating yourself to develop unshakable conviction in long-term, broad-market investing. When the inevitable crash comes, you will have a clear, mechanical plan (Method 1) to follow, potentially augmented by informed judgment (Method 2), allowing you to act with "emotional neutrality" while others are frozen in fear.

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Systematically buying during market downturns to manage fear and capitalize on lower prices.

Based on this transcript from 1M65's live session.

Here are the main points useful for an investor, focusing on his "crash buying" strategy and financial planning advice.

Core Philosophy: Crash Buying

The strategy is about systematically buying during market downturns to manage fear and capitalize on lower prices. It's not about predicting the bottom, but about having a disciplined plan.

The Science & Statistics Behind the Strategy

This is the core of the lesson. The strategy is based on historical frequency and recovery times of market drawdowns.

1. Frequency of Market Crashes (Based on 100 years of S&P 500 data):

• -10% Drawdown: Very common. Happens about every 3 years.

• -15% Drawdown: Uncomfortable but still common. Happens about every 4-5 years.

• -20% Drawdown (Official Bear Market): Serious. Happens about every 6-7 years.

• -25% Drawdown: Rare. Happens about every 10 years.

• -30% Drawdown: Very rare. Happens about every 15 years (e.g., COVID crash).

• -40% Drawdown: Extremely rare. Only 4 times in 100 years.

• -50%+ Drawdown: Once in a generation. Only 2 times in 100 years (Great Depression, 2008).

Key Takeaway: Waiting for a 40-50% crash means you might wait a lifetime. Understanding this frequency removes the fear of "missing the bottom" and informs when to deploy capital.

2. Recovery Time After Buying:

• If you buy early (e.g., at -10%), you may have to wait longer to break even (potentially 3-4 years in a major crisis) as the market could fall further.

• If you buy later/deeper (e.g., at -20% or -25%), the recovery time to breakeven is historically shorter.

• Conclusion: The deeper the entry point, the shorter the historical recovery time, but the higher the chance you'll miss the dip entirely if the crash isn't that severe.

The "Spread Out" Execution Plan

Based on the above statistics, 1M65 advocates a graduated, spread-out approach:

1. Start small at -10%: Since -10% corrections are common and recovery can be long, take a small position.

2. Increase size at -15%: Take a medium-sized position.

3. Go "heavy" or "big" at -20% to -25%: Since bear markets are less frequent, this is where you deploy larger portions of your dry powder. This balances the probability of the event with the benefit of a faster recovery.

4. Consider going "all-in" at -30%: These events are very rare and may justify using most of your remaining capital.

Essential Prerequisites for Crash Buying

You cannot execute this strategy successfully without preparation:

1. Financial Safety Net: Have secure emergency funds and insurance so you don't need to touch invested funds.

2. Dry Powder: Always have cash/liquid reserves ready to deploy. He references Warren Buffett keeping ~1/3 in cash.

   • Sources of Dry Powder: Cash, CPF Ordinary Account (OA), Supplementary Retirement Scheme (SRS).

   • Deployment Order: Use the funds with the lowest return and highest liquidity first (e.g., SRS, then OA, then cash last).

3. Emotional Neutrality: You will see losses on early purchases. You must be prepared psychologically to hold through further declines without panic. This is about "heart, not mind."

What to Buy

• Avoid individual stock picking. He considers it very dangerous.

• Recommended: A globally diversified portfolio or broad index fund (like S&P 500). He mentions using Endowus for his CPF/SRS funds.

• Warning: Avoid leveraged ETFs (e.g., TQQQ) due to existential risk of wipeout in a severe crash.

Key Miscellaneous Investor Insights

• It's a form of DCA: Crash buying is essentially Dollar-Cost Averaging down during a specific event, after which you hold.

• Don't try to time the rebound: It's very difficult. It's easier and more systematic to buy on the way down.

• Missing a crash is okay: There will always be another one. It's better to miss an opportunity than to be unprepared and panic-sell.

Overall Summary for an Investor

1M65's crash buying is a statistically-informed, disciplined capital deployment strategy designed to overcome emotional fear. The core is understanding that severe crashes are rare, so you must start buying early with small sizes, but reserve your largest investments for the statistically significant -20% to -25% drawdowns. Success depends entirely on preparation: having secure finances, ready cash, and the emotional fortitude to watch temporary losses. The goal is not to catch the bottom, but to ensure you are buying a significant portion of your portfolio at historically low average prices.

https://www.youtube.com/watch?v=Rr88UXBuGlU&t=1918s

Fear Management in Market Crashes

The main points are:

1. Fear Management in Market Crashes

   • Understanding the extent and length of losses can remove fear.

   • Expect to experience periods of losses before gains in crash buying.

2. Science Behind Crash Buying Execution

   • Start buying at -10% decline.

   • Buy more heavily at -20% to -25% decline.

   • Question posed: *Why not wait until -30% to -40%?* (This implies a strategy based on averaging in early rather than trying to time the very bottom.)

3. Reiteration of Fear Management

   • Same as point 1: knowing the expected losses beforehand reduces fear.

Personal Strategy & Execution Logic

• Rule: No buying occurs until the market has declined by at least -10%.

• Method: Uses a scaled, incremental buying plan ("shots") triggered by further declines.

  • Initial positions are small.

  • Buy more at each subsequent ~2.5% decline.

  • Position size increases as the crash deepens (Small → Medium → Large → Heaviest).

• Peak Deployment: The largest capital allocation is reserved for the -25% to -30% decline range.

• Core Doctrine: Conserve emotional and financial courage for the deeper crash levels (~25%), not the initial decline (~10%).

Psychology & Managing Fear in Crashes

• Universal Feeling: Every crash feels catastrophic in the moment, triggering instinctive panic.

• Key Challenges (The "Unknowns"):

  1. Chaotic Feeling: The event feels unpredictable and is amplified by media fear.

  2. Unknown Severity: Investors cannot know how deep the crash will go ("how bad is bad?").

  3. Unknown Duration: The timeline for recovery is a mystery.

• Root of Fear: Fear stems from a lack of awareness of historical market distributions (patterns), not from the losses themselves.

• Antidote to Fear: Having a clear, pre-defined plan provides manageability. The plan is built on:

  1. A Financial Safety Net (ensuring you can withstand losses).

  2. The Heavier Hammer Concept (increasing bets as prices fall).

  3. Emotional Neutrality (sticking to the logic, not the emotion).

The Two Foundational Questions

• To invest confidently during crashes, you must answer two core questions:

  1. Frequency: How often do drawdowns of different sizes actually occur historically? Knowing this turns abstract fear into concrete probability.

  2. Recovery: If you buy during a decline, how long do you historically need to wait to break even? This addresses the most pressing investor anxiety.

• Method: The presentation will answer these using 100 years of S&P 500 data to analyze the distribution of drawdowns and the mathematics of recovery.

Distribution of Drawdowns (The Concept)

• The logical starting point for confident crash investing is understanding historical frequency.

• Key Premise: Historical market data reveals clear patterns in how often different declines occur. This knowledge is foundational for setting realistic expectations and making decisions.

Understanding Frequency to Control Fear

• Market corrections and crashes happen with predictable regularity, but their severity varies greatly.

• Magnitude Determines Rarity & Strategy:

  • A -10% correction is a normal, expected part of market cycles.

  • A -50% crash represents a rare, systemic failure and a generational event.

• Core Takeaway: Understanding the historical frequency of declines of different sizes is the critical first step to controlling fear (because you know what is "normal" vs. "exceptional").

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Historical Distribution Table (S&P 500, 100 Years)

• Core Insight: Declines happen with predictable, tiered frequency. Their rarity increases sharply as severity deepens.

• Specific Tiers & Frequencies:

  • -10%+: ~30-35 times (~every 3 years). Normal correction.

  • -15%+: ~20-22 times (~every 4-5 years). Serious pullback.

  • -20%+: ~14-15 times (~every 6-7 years). Bear market.

  • -25%+: ~9-10 times (~every 10 years). Deep stress (e.g., 2022).

  • -30%+: ~6-7 times (~every 15 years). Crisis (e.g., 2020 COVID).

  • -40%+: Very rare. Structural/systemic fear (e.g., 1973, 2001).

  • -50%+: Once a generation. System failure (e.g., 2008 GFC, Great Depression).

Drawdown Distribution Visualized

• The frequency of crashes drops exponentially beyond the -20% to -30% range.

• This visualization underscores that catastrophic drawdowns (-40% or more) are statistically rare events, not common occurrences.

Key Takeaways from the Distribution

• Context for Emotional Calibration: Knowing the historical probability allows you to match your emotional response to the statistical reality of the decline.

• Summary of Tiers:

  • -10%: Common and normal.

  • -15%: Uncomfortable but frequent; tests discipline.

  • -20%: Serious; bear market territory.

  • -25% to -30%: Rare and meaningful; crisis-level events.

  • Beyond -30%: Requires systemic failure; these are generational events.

• Practical Implication: A -15% decline is statistically routine, not extraordinary. This knowledge should temper panic.

Overall Synthesis: The data provides a probabilistic map of market declines, showing that severe crashes are rare, while moderate pullbacks are a regular feature of market cycles. This factual foundation is key to managing fear.

The Core Question of Recovery

• While knowing crash frequency is helpful, the question that truly haunts investors is: "How long will I be stuck?"

• This section shifts focus from frequency to recovery timelines, examining how long it historically takes to break even when buying at different points during a decline.

• The core promise is that the data on recovery times "may surprise you."

Defining the Framework for Breakeven Analysis

• Concept: To measure recovery, you track the time from your specific entry price back to that same price.

• Setup: The analysis uses a hypothetical market peak (Index = 100) and examines buying at different drawdown levels (e.g., -10%, -15%, -20%).

• Key Metric: The critical question is not "When will the market reach a new all-time high?" but rather: "How long does it take for the index to recover back to my specific purchase price?"

• Why It Matters: This waiting period—the time from purchase to breakeven—is what defines the investor's emotional and financial experience during a crash.

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Breakeven from a -10% Entry Point

• Historical Pattern: Even when buying relatively early in a decline, recovery to the purchase price (breakeven) has a manageable historical timeframe.

• Typical Timeframe: For a -10% entry, the typical time to breakeven across major crises was approximately 3–4 years (excluding the anomalous recovery from the 2020 pandemic).

• Key Insight: This shows that "early" buyers are not stuck indefinitely, even if the market continues to fall significantly after their purchase.

Breakeven from a -15% Entry Point

• Core Finding: Entering at a deeper decline (-15%) historically accelerates recovery.

• Typical Timeframe: Breakeven from a -15% entry typically takes 2–3 years.

• Mathematical Advantage: This is roughly one year faster than entering at -10%. This demonstrates the strategic benefit of patience and waiting for a deeper pullback before deploying significant capital.

Breakeven from a -20% Entry Point

• Significant Acceleration: Entering at -20% further shortens the recovery period dramatically.

• Typical Timeframe: Breakeven typically occurs within 1.5 to 3 years, with many instances around 1.5–2 years.

• Critical Caveat: The slide ends with the crucial practical limitation: "But the Market May Not Crash by -20%." This highlights the trade-off: while a -20% entry offers faster recovery, such a decline does not occur in every downturn. An overly rigid wait for this level could mean missing deployment opportunities in shallower corrections.

The Core Trade-Off

• There is a fundamental tension in strategy: Deeper entry points historically lead to shorter recovery times.

• However, waiting for a deeper entry increases the risk of missing the opportunity altogether if the market doesn't decline to that level.

Slide 2: Master Summary of Scaling-In Logic

• Presents a clear, tiered strategy based on historical recovery data:

  • At -10% Entry: Small positions. Typical breakeven: 3–4 years. Used to establish initial market participation with disciplined patience.

  • At -15% Entry: Measured position increases. Typical breakeven: 2–3 years. A balanced opportunity with a reasonable recovery timeline.

  • At -20% Entry: Larger capital deployment. Typical breakeven: 1.5–2 years. Justified by significantly accelerated recovery potential in bear market territory.

• Note: These are historical averages; individual results will vary, but the pattern is consistent.

Justification for a Spread-Out (Scaled) Approach

• The strategy combines two objectives:

  1. Prevent Inaction: Small early positions at -10% ensure you are participating and not waiting indefinitely for a deeper crash that may not come.

  2. Optimize Recovery & Capital Efficiency: Larger positions at deeper declines (-15%, -20%+) benefit from faster historical recovery, which reduces emotional stress and uncertainty.

• Core Doctrine: Courage should increase as expected pain decreases. This means deploying more capital when the statistical outlook (based on frequency and recovery math) is more favorable, even though fear is highest.

• Strategic Inversion: This approach deliberately inverts natural human impulse. Instead of buying less as prices fall, the disciplined investor buys more, guided by data rather than emotion.

Why Most Investors Fail

• Root Cause: The Knowledge Gap. Investors fail primarily because they lack key information about market behavior.

• Four Specific Gaps:

  1. Frequency: They don't understand the historical distribution of how often drawdowns of different sizes occur.

  2. Recovery Math: They don't understand the mathematics and typical timelines for recovery.

  3. Psychological Misjudgment: They overestimate the psychological duration of pain and underestimate their own capacity to endure and adapt.

• Lack of Preparation: They often fail to establish two critical safeguards in advance:

  • A Financial Safety Net (ensuring they can withstand losses without being forced to sell).

  • Emotional Neutrality Techniques (training to stick to a plan under pressure).

The Mindset of Patience & Discipline

• Core Principle: "It is okay to miss a crash." Patience is paramount, as the market rewards it over impulsiveness.

• Three Supportive Arguments:

  1. Another Chance Will Come: The historical frequency data proves that market declines are a recurring feature, not a one-time event.

  2. The Cost of Inaction is Limited: Missing a single buying opportunity is survivable and only costs one chance. A long-term investor has many such opportunities.

  3. The Cost of Breaking Discipline is Catastrophic: Abandoning your strategy—through panic selling or reckless, unplanned buying—is what can permanently damage your financial future and your confidence as an investor.

The Final, Fundamental Principle

• Core Philosophy: The market does not require you to be "right" (in terms of perfect timing or prediction).

• The Only Requirement: It requires you to participate without breaking your discipline.

• Key Reassurances: You don't need to predict the bottom, time the perfect entry, outsmart others, or anticipate economic shifts.

• What You Do Need: A foundation built on understanding probability, respecting recovery math, and maintaining emotional equilibrium.

• Ultimate Rewards & Punishments:

  • The market rewards consistent participation.

  • It punishes absence (missing out).

  • It destroys those who abandon discipline under stress.

What Crash Buying Truly Is (And Isn't)

• It is NOT about bravery or market-timing genius.

• It IS about four pillars of preparation and understanding:

  1. Knowledge: Understanding probability (drawdown frequency) and recovery patterns.

  2. Mindset: Developing Emotional Neutrality to act without fear or greed.

  3. Strategy: Differentiating a "Living Index Fund" vs. a "Dead Index Fund." (This implies a strategy of active, scheduled buying during declines—a "living" fund—versus a passive, static investment—a "dead" fund that doesn't take advantage of crashes).

  4. Preparation: Having a plan, a financial safety net, and emotional training in place before a crisis.

The Final, Crucial Trade-Off (Reiterated)

• This restates the central strategic tension:

  • Deeper entry points (e.g., -20%) offer the benefit of shorter historical recovery times.

  • The cost of targeting only deep entries is a higher chance of missing the opportunity if the market doesn't decline that far.

• This trade-off justifies the scaled, incremental approach outlined in the entire presentation.

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