“Be fearful when others are greedy, and be greedy when others are fearful.”
These were words spoken by Warren Buffett at an interview he conducted during the height of the 2008 Financial Crisis. I had them printed out and displayed right in front of me so that I could see them everyday, especially when I am reviewing my stock portfolio Whenever my portfolio takes a beating or I feel unsure about whether to buy more, his words are a beacon of sanity and wisdom for me.
From the many books I’ve read on investments, there are many strategies and tactics to trade or invest in shares. There is however one general common theme: you need a highly disciplined mindset to profit from stocks, because you must be different from the general crowd. Easier said than done, as I’ve found out from my over one decade of investing.
For me, it was easier to be not “greedy” than to be not “fearful”. During the past few boom runs, I realized I could steer myself to sell and take profit when the market was getting too hot. However, when stocks plunge, I get the jitters and failed to act fast and swift enough to buy more, even though I have been preparing myself mentally and financially to do so.
Just imagine this: blue chip stocks which you have witnessed selling at over $20 plunge to single-digit prices. Reports of global meltdowns and companies going bankrupt appear in the news everyday. Everyone you know seems to think it’s time to get out of stocks and go for bonds or gold.
During market crises, I had to brace myself whenever I decide to buy more. I had checked through the company’s financials and made it a point to buy only well-managed blue chips. We also used only money that was set aside for investments.
I knew it was impossible to predict the bottom, and so had to buy more as the stocks trended down. It was not easy to ignore the doomsayers and the price falls that succeeded every buy order. My fingers even started to get the jitters when I pressed the order “confirmed” button. Talk about grit. There’s no time for lament, only emotion-less, almost robot-like action and an unshakeable faith that stock markets go through cycles.
After the initial jitters, I don’t think I have ever really lost sleep over our stock portfolio as we were never subject to any financial risks, having set aside our emergency cash funds and having a very low level of debt.
So far, Warren Buffett’s words have been proven right. Stocks do rise and usually within the 12-18 months after that.
The recent Greek crisis and Europe woes have resulted in a gyrating stock market. The slowing down of China as well as the lagging US economy are likely contributory factors to a global slowdown. I cannot predict when the next crisis would strike, but I do hope that when that happens, I have the grit and guts to pick up stocks which are undervalued.
(This article first appeared in CPF's IM$avvy website.)