How Smart Investors Thrive During Market Crashes: Lessons from Apple and American Express

With markets experiencing significant upheaval lately, it's essential to reflect on the invaluable lessons offered by a unique group of investors. These individuals not only withstand bear markets but actually flourish during them.

Today, we’ll explore the remarkable wealth generated by those who can identify opportunities when others perceive only chaos. It's crucial to recognize that while bull markets are certainly enjoyable, bear markets are often where life-changing wealth is formed.

A historical lens reveals that the greatest transfer of assets occurs during market downturns rather than during booming times. Consider the substantial returns following major historical market lows:

• 1932 (Great Depression): +372% over the following five years
• 1974 (Oil Crisis): +76% over the next three years
• 1987 (Black Monday): +62% over the next three years
• 2002 (Dot-Com Bust): +101% over the next five years
• 2009 (Financial Crisis): +400% over the next decade

These statistics illustrate the advantage of acquiring quality assets when they are priced attractively.

Legends of Investment: Notable Contrarians

Warren Buffett: The Expert Bargain Hunter

During the financial crisis of 2008, while many investors rushed to sell their holdings, Warren Buffett took a different approach—he began buying aggressively. In September of that year, just as Lehman Brothers was going under, Buffett invested $5 billion in Goldman Sachs, which later brought in around $3 billion in profits. He didn't stop there; he also invested $3 billion into General Electric under similar favorable terms.

Buffett famously advocated for investing in American stocks during this tumultuous period, making significant purchases in companies like Wells Fargo, acquiring shares at prices significantly lower than pre-crisis levels.

Richard Rainwater: The Catastrophe Investor

The late Richard Rainwater thrived by investing in undervalued assets that nobody else wanted. During the Texas real estate collapse in the early 1990s, he and his partner John Goff snapped up undervalued properties at astonishing prices. This strategy paid off brilliantly when they took their company public, ultimately selling it to Morgan Stanley for $6.5 billion in 2007, just before the next market downturn.

After the dot-com bubble burst, Rainwater again capitalized on the market’s misjudgments by investing in beaten-down energy stocks while others were still hesitant.

Andrew Beal: The Patient Banking Billionaire

Andrew Beal offers insightful lessons for individual investors navigating bear markets. While many banks were expanding recklessly during the housing boom, Beal's bank took a radically different path—reducing its loan portfolio and stockpiling cash. This strategy proved wise during the 2008 financial crisis, where Beal seized the opportunity to buy distressed loan portfolios at a fraction of their worth, significantly increasing his bank's assets in just a few months.

Successful Stock Examples from Previous Market Bears

Opportunities During the Internet Bubble (2000-2002)

Even solid companies faced dramatic declines during the tech bubble burst, leading to excellent buying opportunities:

• Apple (AAPL): In 2003, Apple shares dipped as low as $7 (adjusted for splits). Investors who took advantage of this opportunity have seen their investment grow to over 35,000% today.
• Amazon (AMZN): Following a high of $100 in 1999, Amazon’s stock plummeted to approximately $6 by late 2001. Those who recognized its potential and invested at that time have enjoyed gains exceeding 50,000%.
• Microsoft (MSFT): Microsoft shares dropped from $60 to around $20 during the dot-com bust, offering substantial returns for those who bought near the lows.

Gems from the Financial Crisis (2008-2009)

The financial crisis created even more significant investment opportunities:

• American Express (AXP): During the crisis, Warren Buffett increased his stake in American Express when shares fell below $10, compared to previous highs above $60. The stock has since soared to over $200.
• Bank of America (BAC): Buffett invested heavily in Bank of America during the crisis, which has proven incredibly profitable, soaring in value since his initial investment.
• Las Vegas Sands (LVS): As the company teetered on the brink in late 2008, savvy investors saw value in its potential and saw substantial gains when the stock rebounded.
• Ford (F): While other automakers were seeking bailouts, those who bought Ford shares when they dropped below $1 during the crisis saw massive returns as the stock eventually rose significantly.

Developing a Mindset for Success: Learning from Contrarian Investors

The key differentiator for successful investors in bear markets is not merely analytical prowess but psychological strength. These investors tend to:

1. Exercise Patience: They build cash reserves in favorable markets and wait for the right opportunities.
2. Think Independently: They tune out market noise and concentrate on fundamental analysis.
3. Hold Conviction: When they identify undervalued companies, they invest confidently and assertively.
4. Focus on Long-Term Value: They look past short-term volatility and prioritize investment value over exact market timing.

Although predicting the next bear market is impossible, it is certain that one will come, presenting extraordinary opportunities for those prepared for action.

To prepare:

1. Create a wishlist of quality companies you would like to buy at the right price.
2. Identify your target prices—the levels at which the stocks would be exceptional buys.
3. Allocate capital specifically for opportunities that arise in bear markets.
4. When the market presents opportunities, remember these successful contrarians and invest with confidence.

As Richard Rainwater wisely noted: “Money is made when things are going from terrible to only bad.” This embodies the mindset I aim to adopt when the next market downturn arrives.

investing, markets, opportunities