"We have no fear at all"

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "- By Rupert Hargreaves

"data-reactid =" 11 "> – by Rupert Hargreaves

CNBC published Monday in an article titled "Warren Buffett explains why he is not afraid of market transfers but welcomes them".

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The central point of the piece is a statement Warren Buffett (crafts, Wallet) issued at the 1994 annual meeting of shareholders of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). Specifically, he stated: "data-reactid =" 13 "> The focus of the play is a statement by Warren Buffett (Trades, Portfolio) published at the annual Berkshire Hathaway meeting in 1994 (NYSE: BRK.A ) (NYSE: BRK .B) shareholders More specifically, he stated:

"We will buy things over time, and if you buy groceries over time, you want grocery prices to go down.If you buy cars over time, you like car prices. We buy pieces of business – stocks – and we will do much better if we can buy these things at an attractive price than if we can not. "

He added:

"So, we have no fear at all … I mean, what we fear is an irrational bull market that will hold for a long time."

I think this second quote is much more important and revealing than the first. It's all well and good to say that you like to buy stocks when they are cheap, but that does not mean you can easily bear the market declines.

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To succeed as an investor, you must be able to handle all kinds of market environments, from draws to 50% or more to market rallies.

However, psychological research has shown that humans experience losses twice as much as gains. In other words, they would be more upset to lose $ 5,000 than to be happy after making a $ 5,000 gain.

To further illustrate this point, to make up for a loss of $ 5,000, most investors should make a profit of $ 10,000.

It's all well and good to say that you like buying cheap stocks, but will you be able to pull the trigger once the market has dropped 50% to buy more? Most investors would be afraid to do so, fearing further declines, and would prefer to protect their capital.

That's what Buffett's advice should be. Every investor knows that to earn money on the stock market, you have to buy low and sell high, but research indicates that most investors are doing the exact opposite because they are worried about losing money and panic while they should keep a cool head.

Eight decades of experience in the investment business have taught Oracle of Omaha not to panic and stay calm in all market environments.

That's why he says that he feels nothing. He knows that in the long run, stocks will always go higher.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Build the right mindset "data-reactid =" 49 ">Build the right mindset

It's hard to get that kind of attitude. You need two things: experience and research.

The best way to reduce risk in any portfolio is to know your businesses thoroughly. So you will not panic if the market drops by 50%. The experience is much more difficult to acquire; it only comes in time, but if you do your research, you should be able to stay afloat long enough so that you can gain the necessary experience to be a good investor.

So, the main thing to remember from the quotes above is that it's not enough to buy cheap shares; you must be prepared to resist the market downturns as soon as they arrive and learn not to fear but to respect the market and the opportunities that it offers.

Everyone knows how to buy cheap stocks, but not everyone has the mentality to make long-term investments. It requires patience and a contrarian attitude.

Disclosure: The author owns shares of Berkshire Hathaway.

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This article first appeared on GuruFocus.
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This article first appeared on GuruFocus.