Warren Buffet invests in part based on the theory of observing the masses and doing the opposite. When everyone is buying stocks that may be the time that there is unwarranted euphoria in the market. What does he do… sells into the strength and takes profits.
In the winter of 2009, my brother and I were watching the stock market come down from historical highs. My brother was following some analysts since the fall of 2008 that believed strongly the markets were over bought and would take a tumble.
The Dow did come down from about 14000 to around 6600. Was this a buying opportunity? Or, was the world going to end and the markets go to zero? No one can time the market just like no one can see the future. But, what could an investor do?
Knowing that history has a tendency of repeating itself, we could have looked that the past and applied it to the future. This often seems easier said than done and times are different in each generation. The world is very different than it was the last time the market saw stress like early 2009. But, what would someone like Warren Buffett do? And, maybe Just as important, why would I look at him and consider his action as advice for my own action?
Well, Warren Buffett is only one of the richest individuals in the United States. He is also one of the best historical investors of his era. So what was his opinion on whether to invest or not? He was a buyer so he bought.
He stuck with his tried and true principle of buying solid companies at discounted prices. I would guess that there was not a single stock in any market that wasn’t at a discount price in March 2009.
What did my brother and I do? We questioned whether or not the market would continue to drop further so we waited. Shortly thereafter, the market turned around and we watched it climb back to the 11000 range not buying anything the whole way up.
Granted we aren’t millionaires and defiantly not billionaires but the basic principles that Mr. Buffett follows are the same for even us. At that time my brother was managing hundreds of thousands of dollars of my father’s money, certainly enough to make a good profit on a solid investment.
Many, many, good companies stocks doubled and tripled or even quadrupled during that period! What took my father his entire life to save, could have been doubled in a matter of months.
Why didn’t we just look at someone like Warren Buffett and apply those principles that were so successful for him or other successful investors? Why didn’t we take a step back and do a cost benefit analysis? Why didn’t we seek advice from someone else to get another perspective?
Why didn’t we list the pros and cons of investing in time tested companies? Why?
Those questions have led me down the path of regret. The regret of missing an opportunity that could have changed my family’s lives forever. Now I have to work on moving past the mental pain and suffering that missed opportunity has caused.