Opinion – From Grain to Grain: In the last two decades, the Ibovespa only presented this opportunity in less than 4.5% of the months

The devaluation of more than 11% of the Ibovespa in the month of June scares any investor. When we are faced with such a downfall, our natural instinct demands to move away from this asset. However, it is precisely in these moments that opportunities appear for those who accept greater risk. See the result that these investors had in similar moments.

Until Friday, the Ibovespa was down 11.9% in June.

Drops of this magnitude in a short time, like a month, are rare.

Since 1999, that is, in more than 22 years, it has only occurred in 12 of the 270 months, that is, in 4.4% of the months.

A devaluation in such a short time demonstrates that investors have been exposed to an intense load of stress.

Investors tend to overreact, whether to the upside or downside. Normally, when intense stress occurs, there is a high chance that an overreaction to the negative side has occurred.

Investors who accept greater risk can take advantage of these moments. As they say in the market: “go against the herd”.

In the strategy of investing in the index after drops of more than 11% in one month, the return of the following twelve months was positive in two thirds of the time.

In the average of the twelve times this movement occurred, in the following twelve months, the investor obtained a return of 24%. In the best period of twelve months after this fall, the result was 86%.

It is important to understand that this strategy was not always positive. Even applying after the fall, in four months the return was negative. In one of them, the applicator lost 17% in the following twelve months and in another he lost 19%.

The attitude of being cold-blooded and buying when most are selling has already been emphasized by major investors.

Warren Buffett once said, “be fearful when others are greedy, and greedy when others are fearful.”

Michael Viriato is an investment advisor and founding partner of Investor’s House

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