The stock markets dropped a fair amount yesterday and now people are being a little sensationalistic for my tastes. Look at this image from CNN.com last night:
OH MY GOD!!! WE BETTER DO SOMETHING!! Buy! Sell!! ANYTHING!!
Get a life. All of a sudden, a global correction is underway, but I want to give you some perspective:
First, it’s a 1-day report. When things have gone bad in the past (this year, the last decade, and the last 50 years), they recovered. So if any of you or your parents are thinking of selling your stocks because of a 1-day report, please call me and let me politely educate you about what a stupid decision you have made. Based on a couple of conversations I’ve had this morning already, I might not be a good father when my kids make a mistake.
Anyway, let’s look to see what Warren Buffett says about situations like this week’s market drops. He points out that you should treat good stocks like toothpaste: If its value decreases and you still believe it’s going to be a good investment for the long term, it just went on sale. That’s a reason to be happy, not sad.
“If you expect to be a net saver during the next 5 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. 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.”
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
“A market downturn, doesn’t bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short term investors and market timers is a correction not an opportunity.”
Wow. Return to fundamentals? Buy low and hold for many years? Don’t chase the media-induced hype? Who would’ve thought.