Here is what Warren Buffett had to ask investors in his 1997 letters to shareholders – [Please read carefully in order to understand the most basic principle of investing in stocks]
“If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?â€
These questions, of course, answer themselves.
But now for the final exam: “If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?â€
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise very fast and depressed when they fall. In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer lower prices. And the prices are pretty lowâ€¦as of now.