Famous investor and billionaire Warren Buffett has never lost his Midwestern values. He still lives in the same house he purchased in 1958 for $31,500, and his taste in food doesn’t go much beyond hamburgers and steak.
There are stories told of Buffett attending multi-course dinners prepared by world famous chefs where Buffett wouldn’t touch a thing until they brought him a burger. So when Buffett talks about either stocks or burgers you can be assured he knows what he is talking about.
Buffett combined his knowledge of hamburgers and stocks to teach us something about why he is such a successful investor. Buffett said:
“A short quiz: If you plan to eat hamburgers throughout your life and you are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to purchase a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions 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 years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because stock 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 buyers should much prefer sinking prices.”
Financial journalist and author Jason Zweig expresses the same idea when he says, “If we shopped for stocks the way we shop for socks, we’d be better off.” In other words, buy extra when they are on sale.
As I am sure you have noticed, stocks have gone on sale recently. The S&P 500 is down 10 percent in the last week. Panic is the prevailing emotion but as Buffett illustrated, if you are a long-term investor this is actually great news. Stocks are on sale. You can currently buy more “hamburgers” with the same amount of money than you could previously.
The markets have definitely taken us on a wild ride lately. On his radio show tonight Dave Ramsey said, “It might be scary, but nobody gets hurt on a rollercoaster unless they jump off.” So fasten your seat belt, hold on, keep your head about you, and absolutely, positively don’t jump off. Instead, stick to your plan and buy some “hamburgers” and “socks” while they are on sale.