"The time to buy is when there's blood in the streets." (Rothschild)

The time to buy is when there's blood in the streets, even if the blood is your own. (Baron Rothschild)

Rothschild and the Battle of Waterloo

"Baron" is not a specific person's name but a general title indicating a member of the nobility or tycoon. The Rothschild family is one of Europe's most prominent banking dynasties. They amassed significant wealth and influence across Europe beginning in the late 18th century. Mayer Amschel Rothschild, a Jewish banker from Germany, founded the banking dynasty.

The famous quote often attributed to Nathan Rothschild, a prominent member of the Rothschild family, involves his alleged early knowledge of the outcome of the Battle of Waterloo in 1815. According to the tale, Rothschild used this information to profit substantially by investing in British government bonds. There are claims that this story is either unsubstantiated or exaggerated or even fabricated. Despite the controversy, the story remains a well-known part of Rothschild family lore.

It's interesting to note that Rothschild's investment approach, "Buy when there's blood in the streets," shares similarities with the famous saying of Warren Buffett: "Be fearful when others are greedy, and greedy when others are fearful." Both philosophies advocate for contrarian investing, taking advantage of market downturns to make profitable investments.

I believe that the true essence of Rothschild's wisdom lies in the latter part of his quote: "The time to buy is when there's blood in the streets, even if the blood is your own."

Black Mondays

A prime example of such a crisis was Black Monday on October 19, 1987. This marked the largest one-day drop in the U.S. stock market's history, with worldwide losses estimated at a staggering $1.7 trillion. The severity of the crash fueled fears of a prolonged economic downturn or even another Great Depression. On that day, the S&P 500 opened at 282.70 and closed at 224.84 with staggering -20.5% drop.

More recently, on August 5, 2024, another Black Monday occurred, this time in the Japanese stock market. The Nikkei 225 index (the leading stock index of Japan's top 225 companies traded on the Tokyo Stock Exchange) plunged by -12.4% in a single day. 

Imagine if you had been bold enough to invest in either index at the close of these Black Monday events. What would have been the outcome ten trading days later?

• S&P 500: 224.84 → 255.75 (+13.7%)
• Nikkei 225: 31,458.42 → 38,062.92 (+21.0%)

You could have earned more than a year's worth of returns in just two weeks. However, what if 90% of your assets were already invested in the stock market on Black Monday, leaving only 10% in cash? As your hard-earned gains evaporated and your portfolio plunged into the red, would you have been able to muster the courage to use that remaining 10% to buy more? 

Especially when such a market crash could signal the beginning of a larger crisis, it would be psychologically very challenging to invest more, particularly if the majority of your assets were already tied up in stocks. If you had a significant portion of your funds in cash, it might have been slightly less difficult to capitalize on the oversold market. But with only 10% of your assets in cash and your stock positions rapidly declining, making that decision would have been a severe mental challenge.

This is where Rothschild's wisdom shines, teaching us that the time to buy is when there’s blood in the streets, even if the blood is your own. If you hadn't had sufficient cash or were completely out of funds, at least you would have avoided the common mistake of selling your stocks during a market crash, had you adhered to Rothschild's words.

World Wars

There’s literally blood in the streets when there is a war. When World War I began in 1914, the Dow Jones Industrial Average (DJIA) dropped by over 30% in the following six months. But from the start of the war in 1914 to the end in 1918, DJIA rose by 43%, averaging +8.7% annually. Of course, investors who bought at the bottom after the start of the war would have earned even greater returns.

Similarly, during World War II, from its onset in 1939 to its end in 1945, Dow Jones rose by more than 50% over six years. More recently, during the Russia-Ukraine war in 2022, the S&P 500 fell significantly, but that was mainly due to the aggressive interest rate hikes by the Federal Reserve. However, even with the Russia-Ukraine war still ongoing in 2024, the S&P 500 has broken its all-time highs numerous times this year.

Final Words

So, the next time the markets are in turmoil, even if your stock holdings are showing significant losses, I hope you'll have the courage to maintain your investment or even consider making additional purchases. Because the best investment opportunities often arise during market panic and widespread fear.

Thanks for reading. Wish you grow rich slowly and surely!

This blog does not offer investment, financial, or advisory services. The information provided herein is for general informational purposes only and should not be interpreted as advice for making specific investment decisions. All investments involve risk, and past performance is not indicative of future results. It is advisable to consult with a qualified financial advisor to determine strategies or products that are appropriate for your individual circumstances. The owner, writer, or operator of this blog accepts no responsibility for any direct or indirect losses that may arise from the use of or reliance on the content presented. The information provided on this blog is subject to change and may not be current. The content is based on personal opinions, as well as information from news sources and research, and may vary due to shifts in personal opinions, financial market conditions, or other influencing factors. Most data referenced is derived from daily closing prices. Data finding, sorting, graphing, and analysis are performed primarily by myself, and while efforts are made to ensure accuracy, errors may be present. If you identify any inaccuracies, please inform me via comments or email, and I will endeavor to review and correct them as necessary. External content or images will be cited to the best of my ability.