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.