So smile when you read a headline that says "Investors lose
as market falls." Edit it in your mind to "Disinvestors lose as
market falls -- but investors gain." Though writers often forget
this truism, there is a buyer for every seller and what hurts one
necessarily helps the other.
-- Warren Buffett, 1998
When the stock market is in a tailspin, it's natural for
investors to feel a sense of panic. If you check your investment
account balance daily -- or even more frequently -- it can seem
like your hard-earned money is inexorably disappearing.
According to Warren Buffett, if you're feeling stressed about
falling stock prices, it's because you are thinking about
investing the wrong way. In fact, true "investors" should prefer
to see stock prices falling.
Investors vs. disinvestors
The key to Warren Buffett's insight is that by definition,
long-term investors are not looking to sell for a long time. If
you really do have a long-term horizon, all that matters is what
the value of your investment will be far in the future: when you
plan to sell.
As an individual investor, it's not unusual to have a long
time horizon. If -- like most people -- you are primarily
investing for retirement and you're not planning to retire for 10
years or more, today's stock market gyrations will have little
effect on your final selling price. Just consider how the market
is up 75% in the last 10 years, despite losing more than half of
its value during the Great Recession!
10 Year Stock Market Performance, data by
Indeed, if you are continuing to add money to your investment
fund -- i.e., you are saving for retirement -- you are better off
with lower stock prices in the short term. This will allow you to
buy at better prices, knowing that over long periods of time, the
stock market provides fairly consistent returns.
Thus, it is only "disinvestors" -- people who are planning to
sell stocks soon -- who lose when the market falls. People who
are putting more money into the market than they are taking out
should be happy when the market tumbles, because it means stocks
are going on sale.
Changing your perspective
Warren Buffett's insight that only "disinvestors" lose when the
market falls means that if you tend to worry about your
investments, two simple changes could do wonders for your stress
Warren Buffett argues that investors should like to see
stock prices fall. Photo: The Motley Fool.
First, you want to
be an investor
-- not a disinvestor -- for as long as possible. In other words,
you shouldn't invest money that you think you'll need within the
next few years. As long as you're not planning to sell soon, the
day-to-day ups and downs of the market
will have no impact
on your ultimate investment performance.
Second, you need to
think like an investor
. This can be surprisingly hard, because financial news outlets
often cater to Wall Street professionals who are not investors in
Buffett's sense of the word -- they are constantly buying and
However, by remaining focused on your own goals and strategy,
you should be able to adopt a Buffett-like perspective. If you
resolve to continue adding to your retirement fund no matter what
the market is doing, stock market plunges will seem more like
opportunities and less like calamities.
Foolish bottom line
Changing your perspective from that of a "disinvestor" to that of
a long-term investor can be very hard. The constant blare of
headlines about the stock market's every move encourages a
However, as Warren Buffett wisely pointed out more than 15
years ago, true investors ought to be happy when the market is
falling. Unless you're close to retirement, you should be putting
money into the market in the near-term, not selling. As long as
you are a buyer and not a seller, lower prices are better.
If you commit to a long-term investing strategy and maintain a
long-term investor's perspective, you literally have nothing to
worry about when it comes to investing. If you tend to worry
about your investments, changing your mind-set in this way could
help you sleep a whole lot better at night.
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Warren Buffett: Investors Win When the Market
originally appeared on Fool.com.
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