Crash Investing: The Cost of Waiting

Imagine the stock market drops 10% overnight.

Instantly, your heart races with excitement. “This is it,” you think. “The moment I’ve been waiting for. Time to deploy the cash and scoop up those premium businesses at a massive discount.”

But as you open your brokerage account, your thumb hovers over the “Buy” button.

Another thought quickly surfaces: “Wait, what if this is just day one? What if it drops another 10% next week? Is this a repeat of the 2008 Global Financial Crisis? Am I catching a falling knife?”

You close the app without buying a single share.

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Crash Investing is Harder Than You Think

“Be greedy when others are fearful.”

You remember Warren Buffett saying that. Taking it literally, you assume that hoarding cash and waiting for a massive market crash is an investment masterstroke.

In reality, there are two brutal problems with that strategy.

You Are the “Others”

It is easy to be rational when the financial weather is peaceful. But when a real crisis hits, your biology takes over.

Anxiety takes total control of your mental console, sending you frantic messages in an attempt to protect you. Your logical brain gets completely locked out, and you end up missing the best entry points on the market.

Watch this brief clip from Pixar’s Inside Out 2 (from the 1:02 to 3:08 mark) for a perfect visual of how your brain reacts to a market crash:

This is exactly why so many investors freeze during a correction. Their survival instincts are screaming that buying is dangerous, leaving them emotionally paralysed while a prime opportunity slips away.

You Aren’t Warren Buffett

Yes, Buffett absolutely uses massive market crashes to go on a buying spree, but he is no market timer.

When he wrote that famous line in his 1986 shareholder letter, he wasn’t telling people to sit on the sidelines and wait for market crashes before investing.

He was simply explaining that Berkshire was holding on to cash because everything was overpriced and they couldn’t find good businesses at reasonable prices.

More importantly, Buffett can be greedy because of his deep knowledge of the companies he wants to invest in.

You have to be honest with yourself: Have you actually done your due diligence? Do you truly understand the long-term prospects of the business? Are you deeply familiar with its balance sheet and cash flow?

While we will never be as astute as Warren Buffett, we must at least do our foundational homework. Without it, being “greedy”— whether the market is fearful or not — is a recipe for a disastrous outcome.

Return Illusion: Crash Investing Doesn’t Give a Better Return

Let’s assume you actually do have a stomach of steel and you deeply know what you are investing in.

Even then, historical data has shown that trying to time the market and investing only during crashes doesn’t yield better long-term returns.

The reason is simple: bull markets last significantly longer than bear markets. And that continues to hold true today. Let’s look at the real-world evidence from the past five years.

SPDR S&P 500 ETF (SPY): The Waiting Trap

In mid-2021, the market was riding high, but you decided to sit on your cash, waiting for a crash.

Bingo! You got exactly what you prayed for in late 2022 when the S&P 500 entered a brutal bear market. You bravely deployed your cash right at the absolute bottom and bought the ETF at around US$360.

Congratulations! Your strategy worked perfectly. But that’s when the trap sprang shut.

The market rebounded in 2023, and you decided to play the exact same game with your fresh, newly accumulated savings: hoarding cash until the next 20% crash.

Guess what?

It has been more than three years since then, and the market never plunged into a true bear market despite endless geopolitical turmoil and macroeconomic uncertainties.

By waiting on the sidelines for the sky to fall, you missed out on a staggering 70% gain as the ETF climbed from US$440 to US$750 during this period.

Even if the market suddenly suffers a massive 20% crash next week, the ETF would only drop back to around US$600 level. That “catastrophic” crash price is still 36% higher than the price you refused to pay, back in early 2023.

DBS Group Holdings (D05): Losing Out on Dividends

If the waiting trap is painful for growth ETFs, this strategy completely collapses in recent years when applied to a high-quality income stock like DBS.

DBS was trading at around S$27 five years ago and has hardly looked back since.

While its price did suffer a sharp 20% drop from its previous high of S$46.58 to an absolute low of S$37.16 during a bout of volatility last year, that rock-bottom discount was a fleeting window that slammed shut within days.

Not only was the new low nearly 36% higher than S$27, the odds are you would have likely missed the flash sale entirely.

Fast forward to today, with the stock climbing over S$70, you missed out on a massive 169% capital gain and forfeited five years of steadily increasing, compounding dividends!

Market Crashes Are Opportunities

Now, don’t get me wrong. Market crashes are fantastic buying windows to add to your positions or rebalance your portfolio.

However, they only become true opportunities if you are already in the market and have personally experienced its volatility.

By staying invested, you don’t miss out on the long-term gains of the bull markets, and Anxiety doesn’t completely take over your mental console when a drop finally arrives.

It’s like taking a hike up the mountain. If you need the weather forecast to be absolutely flawless before setting off, the hike might never happen.

In reality, you set off in normal conditions, carry a rain coat for the brief storms, and keep moving forward. Even if adverse conditions prevent your from ascending the peak, you would have enjoyed the view along the journey.

Timing the apocalypse is a futile exercise—and an unreliable investing strategy.

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