Last week was Warren Buffett’s annual 2017 Berkshire Hathaway Shareholder Meeting. During the course of the three-day “Woodstock of Capitalism” Chairman Warren Buffett and Vice Chairman Charlie Munger sat down to conduct an extensive question and answer session. During the session, which lasted around five hours, shareholders asked a variety of questions on everything from stocks to politics and even personal advice.
However, out of all of the questions and answers that were given, there’s easily one topic that stands out above the rest as the most useful piece fo advice given during the weekend. That advice is not to act on market speculations–easily one of the most common mistakes for investors.
It can be hard, Buffett admitted, when you see people around you making money off of the market to sit still and trust your instincts. Many investors get swept up in the rush and make mistakes in the heat of the moment.
“Markets have a casino characteristic that has a lot of appeal to people, particularly when they see people getting rich around them… [but] when speculation gets rampant and when you’re getting what I guess Charlie would call ‘social proof’ that it has worked recently, people can get very excited about speculating in markets,” Buffett said. But the best thing an investor can do is, instead, think with a clear head.
“The way the public can react is really extreme in markets and that actually offers opportunities for investors,” Buffett said. “[But] there will be more opportunities for investors if they can keep their wits about them.”
This goes back to Buffett’s age-old advice of being ‘greedy when others are fearful and fearful with others are greedy.’ Acting on impulses is never the way to make money. When everyone else in the market is buying and making tons of money off of fad stocks, the best thing to do is keep your wits about you. The same goes when everyone else is selling in a panic. Market speculation, Buffett says, won’t get you anywhere good, no matter how it might seem.
“Those who haven’t been through cycles before are probably a little more prone to speculate than people who have experienced the outcome of wild speculations…” Buffett said.
In short, be shrewd and always analyze before making a decision. Never forget your own criteria when it comes to buying or selling, and most of all, don’t act in the heat of the moment.