The majority of us will want to buy when markets make all-time...

The majority of us will want to buy when markets make all-time high because we are sold into the optimism while want to sell when the market has collapsed fearing an even worse outcome after the large fall.

But we should be doing the opposite, am sure most would agree.

However, if we are already well invested in equities before the sharp correction, we would already be deeply hurt from the fall, let alone have the capacity to take advantage of bargain basement prices in the aftermath of the correction.

Which is why the wealthy investors like Robert Kiyosaki relish the prospect of a market crash so he could buy cheap assets.

For the sidelined investor with a war chest in waiting, when stocks finally collapse, the world would be their oyster.

Say an investor A has $1mil available cash of which $800k is deployed in stocks, if stocks fall 40%, their value drops to $480k and if he/she were to invest the remaining $200k then at 40% discounted price, when stocks eventually recovers 50% of the losses, his/her total value would be $906k, still down -9.4%.

But another investor B who took the opportunity to buy at 60c in the dollar after the 40% fall, would get $1.333mil, or a +33% gain.
The difference is $427k in investor B's favour

On the other hand, if stocks continue to gain 20%, investor A would chalk up $960k in stock value + $200k@5% interest on cash = $1.17mil
Investor B with 100% in cash at 5% gets $1.05 mil
The difference is $120k in investor A's favour

This is merely a numerical illustration to show the relative Risk Reward when investing at all time highs with prospect of a -40% fall more likely than a 20% gain. In such illustration, we can use the index (e/g S&P500) as proxy for performance.

During GFC, CBA crashed 56% after a meteoric 250% rally over a 4 year period.

This time around, CBA has gained 213% since March 2020 lows and also a 4 year period.

Not saying definitely that CBA would crash like in 2008, but if another banking crisis arrives in US, sparking another financial crisis, it is a strong possibility or shall I say a -50% fall has a greater likelihood than another 20% gain.

And in all seriousness, a -50% fall in CBA from here takes it down to just $65.83 which is a little higher than $63.60 Sept 2020 lows, almost completing a X-mas tree Nordique retracement.

All time view
CBA Stock Price and Chart — ASX:CBA — TradingView

If we apply that Investor A and B scenario into the CBA experience during the GFC here is what we get

Investor A
$800k @ $61,18 in Oct 2007 = 13,076 shares
$200k @ $26.76 in Jan 2009 = 7,474 shares
Total : 20,55o shares
Value in April 2010 @ $58.21 = $1,196,215
Gain from Oct 2007- April 2010 (2.5 years) = $196,215
Performance = 19.62% or average of 7.8% pa

Investor B
$1 mil bought @$26.76 gives 37,369 shares
Value in April 2010 @ $58.21 = $2,175,261
Gain from Jan 2009-April 2010 = $1,175,261
Performance  117.52% over 15 months

Investor A will say Time in Market, still a positive result. But in this case, CBA recovered well, but that is not the case with most other stocks.

Back in the days, I had cautioned BUD holders that if only they sold their stock with -50% loss and reinvested in another opportunity, they could probably near recover all their losses. But most of the old faithfuls did not and lost the whole lot, being in denial.
If you suffered a -50% loss and reinvested the proceeds in another stock that gains say 30%, you'd be -35% down, but you'd be -75% down should the dog stock you owned drop another 50% (which is typical).