Floyd Bostwick Odium - Lesson in Profiting From a Crashed Market
By SmartProInvesting.com Stock Investing Team.
January 31, 2009
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Our stock market is down, almost to its knees, and investors have lost a fortune over the past nine months or so. Seething with anger, investors are struggling to salvage whatever they can, out of their investments. What do you get? A scramble to sell off their stocks at floor prices, an action that leaves the market under continued pressure.
This is not unusual with investors in such circumstances. When the market has taken a nose-dive, fears rule, investors are jittery and it's difficult to see any sense in holding stocks with vanishing values. However, it has been said over and over by those who have shown a track record of success with the stock market, that investors reactions in such circumstances are often dominated just by sentiment. Overtaken by fear, they consequently tend to do the opposite of what will ultimately be more profitable.
One proof of the huge benefit of a more rational response to a market crash will be found in the American investor, Floyd Bostwick Odium. He was reputed to have made a fortune off the stock market crash that came with the Great depression of 1929. In a short period, he accumulated so much wealth just by acting contrary to what most other investors felt more comfortable doing.
Mr Odium's action had two prongs. the first part is clearly late now for our current market situation, so we'll concentrate on the second. That first part, though, was that he read the euphoria of the market as the bulls raged and sensed that something was going to go wrong. He concluded that the boom couldn't just continue and moved in time to liquidate much of his stock investments. That's too late now, in our circumstance.
He was right. The economy soon tanked and the famed depression set in. The impact was far-reaching and most stocks went down substantially in value. With time, most stocks were down to a fifth of pre-depression value, something more like what has happened to stocks in our market, today.
Well, while other investors struggled to sell and salvage what they could, Floyd Odium knew it was time to get back. So he went picking quality companies that their value had been thoroughly beaten down. With a cash reserve from the stocks sold before the market finally went burst, he made bargain purchases of grossly under-valued stocks.
The rest is history. In a short while, Floyd Odium's investment value had shot up, turning him into one of the richest men in America, at the time. With a lot of resources now at his disposal, it was easy to expand into various investments that further grew his wealth.
Selling his stocks before the market caved in was a smart move. However, that only saved his investment value. What quickly grew it was the second action of buying into companies at the time the stock prices were on the floor. As grim as the economic situation was and as bad as the stock market crises was, he believed in its ability to recover. There again, he read the market properly.
So, as you mourn over the losses of today, think of that critical step Mr Odium took to get back into the market when the market was down. That was what multiplied his investment value.
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