Buffett: When the Market Falls, Investors Win

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

It’s always easy to recognize a sense of panic when the market begins to go into a tailspin. If you begin to look at your investment account each day – or even more frequently than that – and it will look like your hard-earned money is beginning to disappear.

According to the words of Warren Buffett, if you are feeling stressed out about dropping stock prices, it’s only because you are thinking about investing the wrong way. The true investors should actually want to see stock prices dropping.

Investors vs. Disinvestors 

The key to this insight by Warren Buffett is that according to his definition, investors purchasing for the long-term have no interest in selling for many years. If you really do look at investments with a long time horizon, the only thing that really matters is how much your investment is going to be worth way into the future, when you plan to finally sell it. 

As a personal investor, having a long time horizon is definitely not an unusual choice. Most people primarily invest for their retirement. If you have no intention of retiring for 10 years or more, the daily gyrations will have a very negligible effect on the final selling price later on down the line. Just please take into consideration how in the last 10 years the market is up 75%, even though it lost over half of its value during the great recession.

In fact, if you continue to add money to your investment account – i.e., your retirement savings – you are better off with short-term stock price drops. This will give you the opportunity to buy shares at a better price, and know that over the long haul the stock market is going to pay out fairly consistent returns.

Thus, it is only the people that intend to sell stocks soon who are going to lose as the market falls. Those who are putting more money into the market than they plan to take out should actually be happy when the market drops, because it means stock prices are going on sale.

A Change in Perspective 

The insight from Warren Buffett stating that “disinvestors” are the only ones to lose money when the market falls and those who worry about losing money on investments should consider making two simple changes that will work wonders on your overall stress levels.

First off, become an investor and forget about being a disinvestor and stay that way for as long as possible. If you are investing money that you’ll feel you’ll need within the next few years, you shouldn’t be doing it. As long you have no intention to sell soon, the ups and downs of the day-to-day market will not have an impact on the ultimate performance of your investment.

Secondly, it’s time to start thinking like an investor. This is a surprisingly hard thing to do, because the financial news outlets are specifically geared toward the Wall Street professionals that are not truly investors, but traders that tend to buy and sell stocks on a regular basis.

All in all, by keeping your focus on this strategy and goal, you’ll be able to adopt a Warren Buffett like perspective. If you make a resolution and continue to add to your retirement money no matter what the stock market happens to do, plunges in stock prices will look like less of a calamity and more like an opportunity to buy stock shares on sale.

The Bottom Line 

Changing your perspective and becoming a long-term investor and no longer being a disinvestor can often be difficult. The doom and gloom and the scary headlines for the stock market create a short-term mentality.

Warren Buffett pointed something out over 15 years ago, when he said that true investors should be quite happy when the market is falling. Unless of course you are close to retirement, you should be putting money in the stock market for the near-term and not selling anything. If you are a buyer and not a seller, which is Warren Buffett’s philosophy, then the lower prices are always better.

By committing to a long-term investment strategy and maintaining the long-term mind of an investor’s perspective, you have nothing to worry about at all when it comes to investing. By changing your mindset this way, you’ll never have to worry about your investments again. You’ll sleep much better at night.

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