Market crash is a rare opportunity
Most investors get panic when market crash! However, the successful investors think different. Buffett emphasized the following two passages in his 2011 shareholder letter:
The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.
Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus. And here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.
Margin of safety
Because the deeper the decline, the higher the margin of safety of the stock, and the lower the probability of losing a lot of money in investment, which is easy to understand.
The deeper market falls, the safer it is
But one thing is for sure, the deeper the stock market falls, the safer and more profitable it is for long-term investors. Investors should be happy instead (if you agree with this sentence 100% in your heart, then I want to Congratulations), Buffett also holds a similar view. Meaning unless you’re selling the stock tomorrow, the stock price doesn’t mean much to you.
Conclusion
That’s why Buffett wrote in his 2004 shareholder letter: “Be fearful when others are greedy, and be greedy when others are fearful.”
Related articles
- “How to deal with market crash or sharp pullback?“
- “Does the stock market fall deep enough?“
- “Market volatility is investors’ friend“
- “The uncertainty in Investing“
- “Retail investors’ wrong investment concept not worth trying at all“
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