How to Profit From Panic

Good Evening! 👋

Welcome to Wealth Wednesday!

Dear Investor,

The stock market has been ugly these past two weeks.

President Trump’s tariff war with China, Mexico, the EU, and Canada has investors on edge. On top of that, inflation fears are creeping back into the conversation. And when markets start falling and the news cycle turns negative, it’s easy to feel like things are only going to get worse.

I get it. It’s human nature to see red on the screen and assume it’s a sign to sell before things go lower. That’s how our brains are wired. We want to avoid pain and protect what we have. But reacting emotionally to market drops is exactly how people lose money.

If you’re panicking right now, take a deep breath. Step back for a second.

Because here’s what I want you to understand. These types of selloffs are the moments that make great investors rich.

It’s always been that way.

History is filled with examples of investors who made their biggest moves when everyone else was running for the exits. Not because they were reckless, but because they understood one of the most important truths of the stock market. The best opportunities come when fear is at its highest.

Most people freeze up during market corrections. But the best investors go shopping.

And if you want to build real wealth, you need to learn how to think the same way.

Why Investors Struggle With Market Selloffs

If investing was just about numbers, everyone would be rich.

But the stock market is more than just balance sheets and earnings reports. It is driven by human behavior. And when emotions take over, logic goes out the window.

This isn’t just an opinion. Psychological studies prove that investors consistently make irrational decisions when faced with market uncertainty.

A 2011 study by Daniel Kahneman and Amos Tversky found that humans feel the pain of losses twice as much as they feel the joy of gains. This concept, called loss aversion, explains why investors panic sell. When stocks drop, it triggers the same fear response in the brain as physical danger. Your brain registers a falling stock price the same way it would register a threat to your survival.

That is why even experienced investors struggle to hold onto stocks when prices drop. It is not about intelligence. It is about fighting against human emotions.

Another famous study, Barber and Odean’s 2000 research on investor behavior, analyzed thousands of brokerage accounts and found that investors who traded frequently, often due to emotional reactions, earned significantly lower returns than those who held onto their stocks. The reason? These investors tended to sell at the worst possible times, locking in losses and missing out on recoveries.

We also see this pattern in Dalbar’s annual Quantitative Analysis of Investor Behavior. The report shows that the average investor consistently underperforms the S&P 500, not because they pick bad stocks, but because they buy high and sell low. They get excited when stocks are expensive and fearful when stocks are cheap.

If you want to build wealth in the stock market, you have to train yourself to do the opposite.

Selling when the market is down might feel right in the moment, but history proves that it is a mistake. Instead of reacting emotionally, take a step back, look at the big picture, and remind yourself that volatility is normal.

Market corrections happen every single year. Historically, the S&P 500 drops at least 10 percent once per year on average. Yet over time, it has continued to grow. The investors who recognize that and stay the course are the ones who end up winning.

What is a Contrarian Investor?

A contrarian investor does the opposite of what the crowd is doing.

When most investors are euphoric and piling into stocks at all-time highs, a contrarian starts looking for the exits. When the market is in freefall and fear is everywhere, a contrarian is quietly buying.

It sounds simple, but it’s hard to do in practice. Buying when everyone else is selling feels wrong. It feels reckless. But if you study the best investors in history, you’ll see a pattern.

Warren Buffett made one of his best investments during the 2008 financial crisis. The market was in shambles. Banks were failing. Investors were terrified. And that’s when Buffett stepped in and bought $5 billion worth of Goldman Sachs stock. At the time, it looked like a crazy move. Goldman Sachs was in trouble, and the financial system felt like it was on the brink of collapse. But Buffett knew that Goldman wasn’t going anywhere. He saw a chance to buy one of the best investment banks in the world at a discount, and he took it.

David Tepper did the same thing during that crisis. While the average investor was dumping bank stocks, Tepper was buying Bank of America, Citigroup, and mortgage-backed securities. Everyone thought the financial system was doomed. But Tepper saw a different picture. He believed that the government wouldn’t let the big banks fail, and he was right. His bets made billions.

Bill Ackman took a similar approach in 2010. He saw potential in Howard Hughes Corp when it was on the verge of bankruptcy. No one wanted to touch the stock. It was too risky. But Ackman saw something the market didn’t. Over the next few years, the stock surged over 800 percent.

These investors didn’t have a crystal ball. They weren’t guessing or gambling. They simply understood that fear creates opportunity.

The market always overreacts. It swings too far in both directions. When stocks are soaring, people assume they’ll never come down. When stocks are crashing, people assume they’ll never recover. The best investors take advantage of that emotional overreaction.

Instead of following the crowd, they step back, assess the situation rationally, and make decisions based on logic, not fear.

How to Think Like a Great Investor

I’m not in the business of predicting market crashes. No one is.

If anyone tells you they knew this selloff was coming, they’re lying. The stock market is unpredictable in the short term. It always has been.

But here’s what I do know. These selloffs happen over and over again, and every time they do, investors have a choice. You can either panic, sell everything, and watch from the sidelines. Or you can recognize what’s really happening. The market is handing you an opportunity to buy great companies at a discount.

It sounds easy when you put it that way. But in the moment, it doesn’t feel easy.

Right now, people are playing defense. They’re raising cash, selling stocks, and waiting for things to “settle down.” But when has that ever worked? Think back to the last major selloff. Did stocks eventually recover? They always do.

Yet every single time, investors make the same mistake. They sell when they should be buying.

Nvidia is a perfect example.

A few months ago, everyone loved Nvidia at 147. Now it’s trading at 117, and suddenly no one wants it. What changed? Did the company suddenly become worse? Did its future growth disappear overnight? Of course not. But people let price action dictate their emotions. If a stock is going up, they assume it will keep going up. If it’s going down, they assume it will keep going down.

That’s not investing. That’s reacting.

If you truly believed Nvidia was a great company at 147, you should love it even more at 117. But most people don’t think that way. They see red, they feel fear, and they convince themselves that something must be wrong.

This is why so few investors actually make real money in the stock market. They can’t control their emotions.

The best investors don’t think like this. They focus on the business, not the stock price. They look at fundamentals, not headlines. They recognize that volatility is normal and that corrections are where the biggest opportunities are found.

I know it’s not easy. Buying when everyone else is selling feels wrong. But look at history. Every major selloff has turned into a buying opportunity for those who had the patience and discipline to stay the course.

Right now, you have that same opportunity.

Conclusion

The best opportunities in the stock market don’t come when things feel good.

They come when there’s fear. When investors are panicking. When the headlines are full of bad news. That’s when great stocks go on sale.

If you want to build real wealth, you have to train yourself to see moments like this for what they are. Not something to fear, but something to embrace.

Warren Buffett, David Tepper, and Bill Ackman didn’t make their fortunes by waiting for things to feel safe. They made money by stepping in when others were running away.

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