What happens when there is a 20% off sale at the local electronics store? People usually get excited to buy. Right? What happens when there is a 50% off sale? Those same excited people would buy even more! So why is it so different when we look at buying and selling shares in top notch companies on our local stock exchanges? Simply, It comes down to emotion and that emotion is FEAR.
Why do people sell their portfolio when the stock market is having a sale? When they should be loading a up on deals. Next time you see a 10% correction on the S&P 500 or what I like to call a “sale”, put your FEAR aside and stop listening to the MSM, TNL@TB and talking heads on BNN that the world is about to end and get ready to follow the sage advice of buying low, that so many people seem to foolishly ignore.
One of my favorite Warren Buffett quotes on the topic of buying low and selling high.
A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five 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. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. 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.
OK – Side question, so there is a 50% off sale at the local WorstBuy. A big screen TV is marked at a $200 discount. You don’t really need a new TV but it is shiny and 4K, HDR, UHD and has a few other acronyms – so you buy it anyway. How much money did you save? Next up opportunity cost.