You shouldn't own common stocks if a 50 per cent decrease in their value in a short period of time would cause you acute distress.
Interpretation
Investing in stocks requires emotional resilience; significant losses shouldn't cause distress.
Warren Buffett emphasizes the importance of emotional preparedness when investing in the stock market. He suggests that if a decline of 50% in stock value would lead to severe anxiety or distress, then those stocks should not be part of your portfolio. This highlights the necessity of aligning one's investment strategies with their risk tolerance and emotional stability.
In practice
A financial advisor might quote this during a seminar on risk management in investments.
I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
Cash never makes us happy, but it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's.
I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing, some twice. _x000D_ You need to fill your mind with various competing thoughts and decide which make sense.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
Oneβs objective should be to get it right, get it quick, get it out and get it over. Your problem wonβt improve with age.
When most investors, including the pros, all agree on something, they're usually wrong.
There's no use diversifying into unknown companies just for the sake of diversity. A foolish diversity is the hobgoblin of small investors. That said, it isn't safe to own just one stock, because in spite of your best efforts, the one you choose might be the victim of unforeseen circumstances. In small portfolios, I'd be comfortable owning between three and ten stocks.
There are substantial rewards for adopting a regular routine of investing and following it no matter what, and additional rewards for buying more shares when most investors are scared into selling.
Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
As I have said before, the daily machinations of the stock market are like a tale told by an idiot, full of sound and fury, signifying nothing.
I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy.
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