Warren Buffett Quotes on Bull Markets & Crowd Thinking
When you think about stock market investors, what comes to mind?
Do you picture an army of Ivy League educated MBAs making detailed and rational decisions about what to invest in? There are a lot of extremely intelligent people in the investing industry… But markets as a whole are prone to irrationality. People are greedy and fearful. When easy money is around (bull markets), greed pushes people to take greater risks than they otherwise would.
“You need to divorce your mind from the crowd. The herd mentality causes all these IQ’s to become paralyzed. I don’t think investors are now acting more intelligently, despite the intelligence. Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”
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“Nothing sedates rationality like large doses of effortless money.”
Bull markets make mediocre investors think and believe they are investing geniuses because of the gains they see in their investment account.
“In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”
You have to do things differently to avoid taking too much risk during market manias. Misery loves company. No one gets blamed for failing when everyone else is.
“Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press”
Bubbles typically start with a good reason. Those who get in early do well. It’s the individual investor who is the last to catch on that ends up holding the bag.
“What the wise do in the beginning, fools do in the end.”
All bubbles burst, eventually. When they do, investors relearn the same lessons over again.
“But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street — a community in which quality control is not prized — will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.”
Being able to maintain an even keel and not overreact to optimism or pessimism is critical for investing success.
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Sober judgement is a commodity in a world of emotional investors.
“You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K.”
Does this mean you should always do what is opposite of the consensus? No, you should act irrespective of the consensus. Sometimes the crowd will agree with you, sometimes it doesn’t. You should be equally comfortable with either situation.
“In some corner of the world they are probably still holding regular meetings of the Flat Earth Society. We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don’t.”
Controlling behavior is a much larger part of investing success than many investors first realize. The 7 tips below from Warren Buffett give us deeper insight into how to think about investing.
7 Investing Tips from Warren Buffett
You cannot become an expert at something without devoting great time to it. Passion is important.
“Intensity is the price of excellence.”
Intensity does not mean trying to profit from the most profitable ideas. Instead, look for investments that are easy to understand – you are less likely to make errors in valuing this type of business. The two Warren Buffett quotes below explain this idea:
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
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“There seems to be some perverse human characteristic that likes to make easy things difficult”
If you don’t ‘get’ investing, don’t keep investing in individual businesses. It’s far better to invest in high quality dividend ETFs than to play a game where you are the patsy.
“If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.”
Keeping with the analogy of investing and games, one should look out for the next great investment opportunity – not obsess over past performance.
“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.”
The ‘playing field’ is most attractive when there has been a recession. Of course – you will also have businesses that decline in value during recessions. You should not invest in equities in general if you cannot withstand this volatility.
“You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress.”
You cannot be successful in your investing career and be constantly swayed by changing opinions of outsiders. It’s very important to believe in yourself and trust your judgement.
“I had a great teacher in life in my father. But I had another great teacher in terms of profession in terms of Ben Graham. I was lucky enough to get the right foundation very early on. And then basically I didn’t listen to anybody else. I just look in the mirror every morning and the mirror always agrees with me. And I go out and do what I believe I should be doing. And I’m not influenced by what other people think.”
While you shouldn’t be influenced by what other people think, you should understand who is running the businesses in which you invest.
The next section covers Warren Buffett’s investing wisdom on management.
