When stock markets turn volatile many investors find it difficult to stay the course. Some investors want to sell off and want to hoard their cash. Some prefer to start buying the stocks that are falling the most. But such knee-jerk reactions may not create wealth for you. Here are five thoughts of Warren Buffett that may guide you in your investment actions in such volatile times.
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Quality matters. Just because a company has fallen 20% from its 52 week high does not make it a great value buy. Do check the fundamentals of the company. Corrections in the market must be used to buy quality stocks for your long term portfolio. Buying them at a fair price makes sense for long term investors. Good businesses tend to compound their profits and reward the shareholders in the long term. Stick to companies that have exhibited decent business performance across business cycles.
Picking up the micro-cap stocks with great potentials may not reward you if the stories do not materialise as expected. If you have a dud stock in your portfolio, use the spikes to get rid of it. Use the proceeds to buy fundamentally strong companies.
Be fearful when others are greedy and be greedy only when others are fearful.
Volatile markets make investors worry about the holdings. The sudden drop in their portfolio’s valuations, make them consider selling out. The same investors were looking for more opportunities when the markets were marching up.
Behavioural issues are a big influencing factor for the retail investors. The emotional swings force them to sell out when it is the time to load up more. Warren Buffett makes it clear that the valuations are attractive when no one is interested in stocks and the other way round.
Someone is sitting in the shade today because someone planted a tree long time ago.
This could be one of the ignored quotes of Warren Buffett. It speaks about the delayed gratification and how it impacts one’s future.
If you sow the seeds in the form of regular investments and let them compound over a long period of time, there is a fair chance that you will see the wealth being created.
Never ask a barber if you need a haircut.
If you buy the idea of long term wealth creation and start investing regularly, wealth creation is not guaranteed. You have to stick to asset allocation and you have to choose the right products that suit your needs.
Many avail the services of investment advisors and distributors. While choosing your advisor be sure that his interests are aligned with your interests.
No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.There are no short cuts – Warren Buffett says. Follow the process and the let the time work for you. The results will be more likely to be in your favour. However, if you try to put your money on tips and get rich quick tricks then you may see some nasty surprises.