In this article titled – Reinvesting when Terrified, Jeremy Grantham discusses how to invest during periods of terminal paralysis, which in the context of investing refers to a state of inaction and indecisiveness caused by fear and uncertainty, particularly during market downturns or volatile periods.
Investors in this state are often unable to make necessary investment decisions, such as reinvesting or reallocating assets, because they are paralyzed by the fear of making the wrong move.
This can lead to missed opportunities and suboptimal investment outcomes. Grantham emphasizes the need for a predefined plan to combat this paralysis and ensure decisive action.
Here’s an excerpt from the article:
There is only one cure for terminal paralysis: you absolutely must have a battle plan for reinvestment and stick to it.
Since every action must overcome paralysis, what I recommend is a few large steps, not many small ones. A single giant step at the low would be nice, but without holding a signed contract with the devil, several big moves would be safer.
This is what we have been doing at GMO. We made one very large reinvestment move in October, taking us to about halfway between neutral and minimum equities, and we have a schedule for further moves contingent on future market declines. It is particularly important to have a clear definition of what it will take for you to be fully invested.
Without a similar program, be prepared for your committee’s enthusiasm to invest (and your own, for that matter) to fall with the market. You must get them to agree now – quickly before rigor mortis sets in – for we are entering that zone as I write.
Remember that you will never catch the low. Sensible value-based investors will always sell too early in bubbles and buy too early in busts. But in return, you may make some important extra money on the roundtrip as well as lower the average risk exposure.
You can find a copy of the article here:
Jeremy Grantham – Reinvesting When Terrified
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