Fire Sale: Investing When Panic Strikes
The case for a watchlist.
Fire Alarm
You wake to the wail of sirens. Outside your window, a fire truck is parked near your neighbor’s home. Smoke billows into the early morning air. You throw on your bathrobe and rush up the street, driven by concern — and curiosity. At the corner, you find your neighbor, visibly shaken.
He tells you he has no insurance. Desperate, he offers to sell you the house for $300,000 on the spot — right here, right now.
What do you do?
Let’s put aside the legal logistics of making a deal on a street corner (not to mention the ethics). Instead, you'd likely be asking yourself:
What’s the worst-case scenario? If the home is a total loss, what’s the land worth after demolition costs?
Are there any hidden liabilities tied to the property?
How bad is the damage? Will the fire department be able to save the structure?
If the fire is controlled, what’s the potential cost of repairs — and is it worth it?
You’d need time, mental clarity, and accurate information — none of which are abundant in the heat of the moment. The smart move would be to decline the offer, help your neighbor however you can, and maybe offer your guest room for the night.
An Alternative Reality
Now, let’s reimagine the scene — but this time, with more context. (We’ll connect it to stocks in a moment.)
You’ve been in the house. It’s built from brick, stone, and tile. The interior is sparsely furnished, and the home has a state-of-the-art fire suppression system. You also know the fire station is just down the road, and crews are already en route.
Your thinking shifts. You’re not reacting — you’re analyzing.
Your neighbor is Mr. Market — Benjamin Graham’s emotional business partner who makes daily offers driven by mood, not fundamentals.
You? You’re the rational investor, ready to act when others panic.
Homework + Watchlist = Improved Odds
That extra knowledge changes everything. You go from bystander to potential buyer. From reactive to proactive. From guessing to calculating.
The same logic applies to investing.
When the market drops suddenly, some shout, “Buy the dip!” But what do you buy? And why?
Many investors scan 52-week low lists or chase headlines. But when time is short and pressure is high, mistakes multiply. You’re like that first neighbor — arriving late, with no background, forced to decide in the dark.
There’s a better way: the watchlist.
Track businesses and industries. Understand them. Know what “normal” looks like — and what “cheap” really means. Build conviction while others are complacent, so when volatility strikes, you're ready to act.
You’re not guessing. You’re not panicking. You’ve done the work.
Final Thought
Market fires create opportunity — but only for those who come prepared.
Do your homework. Build your watchlist. And when Mr. Market shows up in distress, you’ll know exactly what to do.
Stay Rational! (And don’t play with fire.)
Adam
I like this perspective. I'll add something to it: I think it's also helpful to run a few financial screens during a crisis. Sometimes you find businesses that are financially sound but never showed up in any other place. In 2008 I found a company that makes toilet paper (what investor would seriously follow that industry?). That was an easy one.
It's also important to make adjustments for new information. I was heavily invested in retailers when COVID happened, so selling at that time might have looked like panic selling, but I was very happy with what I was able to buy. To the same point, Buffett selling airlines during COVID looked like panic selling to many people, but it was the right move.
Great post - there will always be fire sales that come by so why not be ready when it comes.