market crashopportunitiespatienceWarren Buffett

Market crash….Boon or bane?

What’s so good about the stock market plunging? Well, it present big bargains, offering lots of high-quality stocks at suddenly lower prices. It’s a relatively common occurrence, too, so be prepared for many downturns during your in

vesting life. Markets crash all the time. You should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once or twice a decade, and 50% or more once or twice during your lifetime 🙂

Unfortunately, many times our emotions get in the way when we’re faced with financial decisions to make. When the stock market tanks, for example, lots of people succumb to fear and sell – which is precisely the wrong thing to do. (It’s fine to sell for some reasons, of course, such as if you have lost faith in a company’s future potential or you have found a significantly more promising investment.) Even if we don’t make the mistake of selling in a market downturn, many of us do still let fear overcome us, keeping us from buying. It can be hard to place an order to buy a stock when its price has fallen because so many people have sold it.

Superinvestor Warren Buffett offers a handy perspective with an edible analogy in his 1997 letter to shareholders: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.
Your time frame matters a lot here, as Buffett noted. If you’re still in your adding-money-to-your-investments phase of your life, as most of us are for decades, then lower prices are a good thing.

In order to best position yourself to take advantage of a market drop, it’s smart to not only keep some of your portfolio in cash, ready for compelling opportunities that arise, but also to maintain a watch list of stocks that interest you. Your list can be a simple list, kept on a page of a notebook, or it can be even more useful than that.

This is why a Stock Market Crash Can Be a Wonderful Thing… You can earn big returns .. Be ready to wait with loads of patience

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