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- Every investor feels this
The first equities I bought were of a major retail shopping company, a big bank, and a mining company.
I was very excited! I checked my portfolio every day, and to my shock, I saw the share price of the retail shopping company drop slowly over a few days. Being young and stupid, I sold it.
Now, let’s be honest. This was a combination of immature decisions.
I had no real reason or thought for why I was buying these companies. I didn’t even think about what would drive the share price up or down. I just bought companies with names I recognized and waited impatiently to make money.
I won’t sit here and pretend that I'm now some expert investor. I’m far from it. However, I have learned a little over the last few years.
One lesson that stands out is from Warren Buffet’s 1997 shareholder letter.
Imagine you’re going to be investing over the next five years and answer these two simple questions:
1) When stock prices go up, how do you feel?
2) And, when stock prices go down, how do you feel?
Most people feel great when the prices of equities go up. And why wouldn’t they? They’re making money.
And most people feel horrible when prices go down. Again, for obvious reasons.
This does not make sense.
If you want to invest over the next few years, you should hope for cheaper stock prices.
Let’s see how Warren Buffet explains this in his own words:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Managing one’s psychology is the hardest part of investing. The trap of high stock prices catches many.
Don’t get caught!
“Boring” investors know that when prices are down, the equities are on sale. It’s time to take advantage.
Thanks for reading this week’s edition of Arena.
Until we meet again, good luck being “boring”.
~ Mordi