"In a liquidity crisis, as we have seen all too recently, a sudden tightening of credit sets off a vicious cycle of margin calls that lead to forced sales, which in turn cause asset prices to plunge, and so on. Invariably, the abruptness and severity of the crisis test the emotional and financial reserves of investors.
In an interview, Professor Pedersen used a poker analogy to summarize which groups of investors perform the best and worst in these crises. The “strong hands” have what it takes to survive, he said. Not only are they emotionally strong enough to avoid selling into a panic, but they also have deep-enough pockets to avoid doing so for financial reasons. In fact, the “strong hands” can actually profit by buying at cheap prices near the bottom of a market."
The paper is here.