Quote of the day: Warren Buffett

In a recent post I said that I was selectively scanning for value plays at this level. A reader asked me the legitimate question: “Why would anybody buy anything in this market?” Basically, he was questioning my sanity.

I am entirely sane — my answer to the question is very simple. When you purchase an individual stock or bond, it should not matter what the stock market as a whole is doing if you plan to hold for the security for a long time. What matters is whether your fundamental analysis on the merits of the acquisition is correct. A bull market bails a lot of people out of poor stock picking choices. A bear market is not so kind.

Warren Buffett has said pretty much the same thing.

On May 4th, he held a press conference, during which he said:

There’s no reason we should become fearful if a stock goes down. If a stock goes down 50%, I’d look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.
Warren Buffett, 4 May 2008, as quoted by CNN Money

I certainly agree with that statement. One has to conduct a fundamental analysis on any major investment, whether it be a car, a house, an insurance policy or a stock. If your analysis shows a significant discrepancy to the offered price or the prevailing market price, you have a decision to make — and that’s as true if your analysis says the prevailing market price is too high as when your analysis says it is too low.

Related posts
Stocks pummeled as value plays increase
The wisdom of crowds, the precision of models and going contrarian
Peer pressure and bubbles

  1. Wag the Dog says

    “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” – Sir John Templeton

  2. Stevie b. says

    I’d just about apply Buffet’s quote to gold. Started at 750 – desperately want it to go to 650 and then 550 for the best hedge I can think of vs. cash/deflation. Bonds scare the hell out of me at these levels.

  3. Stevie b. says

    Edward – fair enough, but as you know, the market is supposed to reflect expectations a fair way into the future of “reality” at that time. Deflationary expectations are the conventional wisdom now. IMO it’s the results of the desperate and totally undisciplined measures that will be taken to avoid deflation that we should now be starting to try and anticipate. The powers-that-be will not allow themselves to be overwhelmed by deflation!

  4. Edward Harrison says

    wag the dog, that’s a great quote! I like it. And Stevie, I sold my Treasury Inflation Protected Securities two weeks ago. Deflation s now taking hold. Bonds might be a good bet here.

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