I’m currently sitting on my couch listening to newscasters on television report the latest drop in the stock market with gloom face and menacing tone. Even those who don’t follow the market have not been able to escape the constant coverage of the current financial storm that has hit markets both at home and abroad.
Here are just a few of the headlines in the news recently:
“Wall St tumbles on economic anxiety”
“Recession to be ‘Worse than the 1990′s,’ experts warn”
“Markets latest lurch down raises new uncertainty”
In the midst of such volatility, misinformation and outright confusion, it has been hard to draw any logical conclusions. But, surveying the scene over the past month an age-old lesson in skilled investing has resurfaced:
When the market is going down in flames, seasoned investors see incredible buying opportunities where novices see only doom and gloom.
Warren Buffet, billionaire investor, recently wrote on Op-Ed piece in The New York Times where he said the following (emphasis mine):
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Everyone likes to say the key to investing is, “Buy Low, Sell High”, but how many people actually follow their own advice? Startlingly few, actually. Most people tend to follow the herd, buying stocks when the buzz of how well the market is doing finally reaches their ears and selling when they hear on the news that things are bad. Thus, they do the exact opposite, buying when stocks are inflated by market hype and selling when they have been beaten down.
So why is now such a great time to buy? Because what we essentially have is a HUGE STOCK SALE! Some great companies are selling for half, even 75% less than what they were a year ago. What this means is for every share you could have bought a year ago you can now buy 2 or even 3 for the exact same price.
Right now is an incredible time to buy. This is the opportunity that seasoned investors recognize that others do not. And it’s why some people will get rich off the current situation while others will go broke.
There’s no doubt we’re in hard times, but part of skilled living is keeping your head in the midst of stressful and complicated situations. When others are scared and running for the hills there are some that come out swinging. Learn from those people and imitate them.
I leave you with some final words of wisdom from Buffett:
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”