Buy low, Sell high - Warren Buffett does, you can too
Buy low, Sell high is the oldest investment cliche. Sounds simple, but it is very hard to do. Why? Psychology. Two things drive the stock market; fear and greed. Fear is a powerful emotion that causes people to sell investments and seek comfort and safety in cash or gold. There is a lot of fear around today.
Greed is an even more powerful emotion than fear. Fear is temporary, greed is permanent. Greed always overtakes fear. Greed also lulls us into a false sense of security. For most people logic and reason go out the window at both ends of the spectrum.
Warren Buffett says "Be fearful when others are greedy, and be greedy when others are fearful."
Buying low and selling high requires you to buy now when the economy is in a panic and fear is rampant, and sell when things are going great and everyone feels giddily happy. Why would you sell when your stocks are going up every week?
Psychologically it is incredibly difficult to buy now when all the news is bad and everyone is in a panic. It is counter to every safety mechanism we have learned since we were born. It is equally difficult to sell when everything is going great.
But, watch what Warren Buffett does. He isn't buying just any random stock. Buffett is buying General Electric, Goldman Sachs, and other rock solid companies that are at bargain basement prices today.
You make money selling stocks...not buying them. Here is another counterintuitive truth. Most investors spend all their time researching stocks trying to time their buys for the best entry point. Fine, but the reality is that you make money when you sell stocks, not when you buy them. How much time do investors spend figuring out when to sell? Instead, we are congratulating ourselves on what a great buying decision we made and convincing ourselves that the stock price will continue to go up 15% to 20% per year. Everything is going great. No signs of trouble. Party on.
Short sellers are a different breed. They spend their time finding stocks they believe are over valued...and selling them short. Meaning, they sell stock they don't own (margin), and hope to buy it back (cover) when the price is lower. Stock investors could learn a lot by watching short sellers.
I have learned, and forgotten, these lessons several times over the years, and paid the price along with many other investors. Fear and greed are powerful emotions at opposite ends of the spectrum. Both emotions cloud logic and reason. Warren Buffett is one of the few people with the patience and determination to remember the lessons and make them work.
Remember this "Be fearful when others are greedy, and be greedy when others are fearful." In other words, do the opposite of what your emotions tell you. Easy to say...hard to do.
http://dondodge.typepad.com
Greed is an even more powerful emotion than fear. Fear is temporary, greed is permanent. Greed always overtakes fear. Greed also lulls us into a false sense of security. For most people logic and reason go out the window at both ends of the spectrum.
Warren Buffett says "Be fearful when others are greedy, and be greedy when others are fearful."
Buying low and selling high requires you to buy now when the economy is in a panic and fear is rampant, and sell when things are going great and everyone feels giddily happy. Why would you sell when your stocks are going up every week?
Psychologically it is incredibly difficult to buy now when all the news is bad and everyone is in a panic. It is counter to every safety mechanism we have learned since we were born. It is equally difficult to sell when everything is going great.
But, watch what Warren Buffett does. He isn't buying just any random stock. Buffett is buying General Electric, Goldman Sachs, and other rock solid companies that are at bargain basement prices today.
You make money selling stocks...not buying them. Here is another counterintuitive truth. Most investors spend all their time researching stocks trying to time their buys for the best entry point. Fine, but the reality is that you make money when you sell stocks, not when you buy them. How much time do investors spend figuring out when to sell? Instead, we are congratulating ourselves on what a great buying decision we made and convincing ourselves that the stock price will continue to go up 15% to 20% per year. Everything is going great. No signs of trouble. Party on.
Short sellers are a different breed. They spend their time finding stocks they believe are over valued...and selling them short. Meaning, they sell stock they don't own (margin), and hope to buy it back (cover) when the price is lower. Stock investors could learn a lot by watching short sellers.
I have learned, and forgotten, these lessons several times over the years, and paid the price along with many other investors. Fear and greed are powerful emotions at opposite ends of the spectrum. Both emotions cloud logic and reason. Warren Buffett is one of the few people with the patience and determination to remember the lessons and make them work.
Remember this "Be fearful when others are greedy, and be greedy when others are fearful." In other words, do the opposite of what your emotions tell you. Easy to say...hard to do.
http://dondodge.typepad.com
Comments
Post a Comment