The stock market this month has been like one of those commercials from a major discount retailer, “Prices are falling all over the place.” These are the times that try the commitment of investors, which flush out those who are unprepared, or unwilling to deal with the volatility that is natural to the investing markets and that, quite honestly, is also what has made it profitable over the years. If the stock market went up on a steady line, so much money would pour in that it would soon become very unprofitable. I have always found a silver lining in volatile markets, whether they be stock, bond or real estate. It has been during those times when others are afraid that I have found my best bargains. The house I am living in right now that I built during the last real estate recession, is an example of that, and reminds me to look for value when others are fearful.
I have noticed I am not alone in my thinking. During the past three weeks, as investors have been fleeing stocks, one very well-known investor has been rushing in. None other than Warren Buffet has been not-so-quietly buying up significant shares in a particular oil company. Can you imagine anyone being dumb enough to buy oil stocks now? Or perhaps he sees other’s fears as an opportunity to buy at a discount, a company whose product he knows the world will need for decades to come.
It is a strange human phenomenon that when a retail store has a big sale (think black Friday) people line up for hours waiting for a chance to buy. Yet when Wall Street has a big sale, (think black Monday 1987, or January 2016) no one is interested. Imagine what would happen if a retailer advertised, “Our prices are higher than ever.” They would be laughed out of town, yet whenever stocks on Wall Street have been at record highs (think 1999) buyers rush in to pay whatever Wall Street asks.
So where do stocks go from here? In the short run, I don’t know. No one knows because short term stock prices are driven by investor emotions which are impossible to predict. Unfortunately, in my experience, the investing masses are notoriously wrong. Google “Dalbar analysis of investor behavior” if you want to read the sad research on this topic.
“Buy low?” Right. That will only happen on Black Friday at the neighborhood retailer. When it comes to Wall Street, prices have been falling all over the place and no one seems interested. Well, almost no one.
Warren Buffet isn’t always right, but he must be doing something right to be one of the richest people in the world. If you ask him his secret he will tell you. Just like any Black Friday shopper, he likes a good bargain.
Come to think of it, so do I.
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Hi, I'm Dan. I'm a CFP® Professional.
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