In these febrile times I thought it worthwhile to post a newsletter I first sent out in November:
Warren Buffett has some wise words concerning the value investor's attitude to falling share prices. Truly disciplined value investors celebrate when shares fall in price. I'm currently writing the first chapter of third volume of The Deals of Warren Buffett which is on the purchase of shares in Wells Fargo in the middle of the California recession of 1990, when investors were, in general, running away from the banking sector, pushing down share prices.
With regard to Wells Fargo Buffett wrote that “we welcomed the decline because it allowed us to pick up many more shares at the new, panic prices”.
Investors, that is, those who expect to continue buying investments throughout their lifetimes, should have the attitude of looking to buy when shares are cheap and therefore feel good when prices decline, “instead many illogically become euphoric when stock prices rise and unhappy when they fall.” (1990 Letter to BH shareholders)
Do you want food prices to rise?
Buffett points out that people are not irrational about pricing when it comes to food. They know that they will, throughout a lifetime be buyers of food, and so welcome falling prices and dislike rising prices.
In his 1997 letter he is even more specific, focusing on his favourite, hamburgers: “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?”
Small portions of businesses, called shares, entitle you to a percentage of its income in future years, so you want to buy these rights on the cheap.
“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 To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
Prof. Glen Arnold
I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.
Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.
I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.