Owing to the recent mess in the stock market, often our discussion in office revolves around falling stocks of Indian companies. Just a few days ago when we were involved in one such discussion, one friend guessed about what Warren Buffet must be doing these days. After all, this legendary investor, who became world’s richest man this year, has earned his fortune in share markets.
We could only make some wild guesses about him. After all, he has huge financial resources with him and can easily withstand any crisis. However, we all were agree that this smartest investor on the planet must be exercising caution in buying share during these trouble times.
How wrong I was. Recently I came across an article on the current economic crisis written by Warren Buffet himself. This article is an eye opener for many of us who have become a victim of what many expert are describing as ‘irrational pessimism’.
You can read this entire article here
However, I would like to share with you some golden nuggets from this article.
So
What Warren Buffets Does When Stock Market Falls ?
Simple. He buys more stocks 
And if price keeps falling, he will buy more stocks in huge quantity.
Do you know why ?
Because a simple rule dictates his buying:
Be fearful when others are greedy, and be greedy when others are fearful.
Because he knows that the fear is temporary. The fears regarding long-term prosperity of America’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have.
But most major companies will be setting new profit records five, 10 and 20 years from now. This genius investors knows very well that it is not possible to predict the short-term movements of the stock market. He also have no idea as to whether stocks will be higher or lower a month – or a year – from now.
What he knows, however, is that the market will move higher, well before either sentiment or the economy turns up.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts: the Depression, a dozen or so recessions and financial panics, oil shocks, a flu epidemic, and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Still many people lose money in the markets ?
Yes they did. Because they bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them uneasy.
A lesson for all of us : Never enter into the market for a short term gain. Develop the acumen to predict the rise of the market before everybody. Develop the quality of patience. To achieve prosperity, become a long term investor.
Today, people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities (i.e. Shares) will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
Warren further says that he don’t like to opine on the stock market.However, he’ll nevertheless follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today, my money and my mouth both say equities.
No wonder he is the richest and smartest investor on earth.
Now since you have read this post, I request you to read it once again and this time on places where the word America has come, replace it with India (or Indian as appropriate). You’ll see an entire different picture of our economy.