I’m starting a new series of articles on this site called “Media Panic Investing”. The idea is simple: whenever the media starts to panic about an asset class, and declare the end of the world for the asset, it’s time to start getting interested in the long side and fading the media.
I want to stress though that the media doesn’t usually call the exact bottom when they panic, but usually they are 60-90% into the decline by the time they really get bearish. They are late to the game because it’s impossible for them to be too early, because they are herd followers. The media capitalizes on fear, so fear has to be present before they start their own fear drumbeat. They also tend to start making fun of people who are long the asset or calling into question their intelligence or trading acumen. That’s when you really know you’re onto something when that happens, when an ignorant reporter starts making fun of a money manager for recommending buying something low.
So the idea for this article series is to 1) identify something the media is panicking on and then 2) wait 3-12 months for the actual bottom to occur and provide a huge investment opportunity. I’ve talked about how wrong the media has been in the past this decade on some major trades so I won’t rehash them here but there have been HUGE opportunities to fade the media over the last 10 years and I expect it to continue.
Russia and oil follow similar stories. Both entered bear markets starting in 2011. The oil bear was more of a sideways bear market, it actually started morphing into an ascending triangle but then has broken down into a crash. Russia was more of a sideways to down bear market since 2011 with many false rallies. The key thing to note is that these markets have been in bear markets since 2011! But can you remember the headlines any worse for Russia or oil as they are now? And guess what, they are old bear markets making significant lows, that starts to smell like the end of the bear market. With the media declaring the apocalypse for these two markets we are probably getting close to the bottom.
We are still in a Stage 4 decline in these two markets though so we need to wait for a base to form before staring to figure out where the bottom lies in Russia and in oil. This is where patience comes into play and making a game plan for getting into these markets when they transition back into bull markets.
I’m going to wait 3 months from this post and revisit these markets and see where they are at, or if they make a significant technical bottom before then I will do a post on that. Either way we need to start looking for a bottom in these markets but be patient because it will be a process, markets can form bottoms over as little as a few months to multiple years.
Also the next time the media panics on something I will add it to the list and start this process again for that asset, I think repeating this process will produce monster opportunities over time.