Warren Buffett is truly inspirational. At a time when investors are feeling despondent about the falling stock market prices, Warren Buffett reminds them that they should actually be feeling cheerful about the falling stock prices as it enables investors to buy more stocks with the same amount of money.
Warren Buffett’s guru Benjamin Graham in his classic treatise “The Intelligent Investor” advocates a complete change in the mentality of the investor. Benjamin Graham said “The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage”.
Benjamin Graham explains that investors tend to react emotionally and that the pain of financial loss is more than twice as intense as the pleasure of an equivalent gain. While making $1,000 on a stock feels great, a $1,000 loss wields an emotional wallop more than twice as powerful. Benjamin Graham says that losing money is so painful that many people, terrified at the prospect of any further loss, sell out near the bottom or refuse to buy more.
Benjamin Graham says that investors must have a change in mindset, telling their minds that falling stock prices are like a sale in a super-market – something to be happy about because you have to spend less to buy the same amount of goods.
Warren Buffett gives exactly the same advice. In the great depression of 2008, when investors had capitulated and were totally despondent, it was Warren Buffett who gave out the clarion call to investors to start buying with his classic article “If you wait for the robins, spring will be over”.
Warren Buffett explained that a simple rule dictated his buying and that it to “Be fearful when others are greedy, and be greedy when others are fearful”. Warren Buffett pointed out that fear was widespread, gripping even seasoned investors. Warren Buffett said that while investors were right to be wary of highly leveraged entities or businesses in weak competitive positions, fears regarding the long-term prosperity of the nation’s many sound companies made no sense. Warren Buffett expressed confidence that while businesses will would suffer earnings hiccups most major companies would be setting new profit records 5, 10 and 20 years from now.
At that stage, the stocks of established blue chip companies were available at throw-away prices. Warren Buffett said investors should avoid being in cash and get into equities. Warren Buffett gave examples of past stock market depressions to prove his point.
Warren Buffett was so very right. The stock markets reached the bottom by March 2009 and resumed an amazing bull market thereafter. Investors who heeded Warren Buffett‘s advice would have made a lot of money indeed.
Warren Buffett’s advice comes to the fore once again. In an interview to Forbes, Warren Buffett reminded investors of the same classic investment advice – be happy when stock markets are down because they give you an opportunity to buy stocks cheap. Warren Buffett’s classic to-be-remembered line was “The lower things go, the more I buy. We are in the business of buying“.
Warren Buffett Says Buy Stocks Now
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