“Learn to profit from the folly, rather than participate in it.”
Wednesday, July 2nd, 2008Volatility is not the same as risk. We define risk as the permanent loss of capital. Markets fluctuate and bear markets are inevitable, and occur with relative frequency to flush out the excesses of the previous bull run. Warren Buffet has suggested that investors “Learn to profit from the folly, rather than participate in it.”
If you’ve kept score, carefully cataloging the public predictions of high profile experts, it’s hard not to be bullish on the stock market right now. Especially given all the scary economic and market headlines. Jonathan Laing’s story in Barron’s (Ready for Dow 20,000) reported Alan Greenspan now asserts that the current financial crisis is the worst faced by the U.S. since World War II. Other public figures concede that the latest crisis, the sub-prime mortgage meltdown, threatens to remove trillions of dollars from the capital markets.
Remember, you make your money in bear markets. You just don’t know it at the time. The greatest investors in history have paid little or no attention to day to day market fluctuations. They focus on price (less is more), value (quality at a discount), and the rate at which their equity is compounding (rising book value).