The dumbest reason in the world to buy a stock is because it's going up

Discussion in 'Trading' started by crgarcia, Dec 29, 2009.

  1. so said Warren Buffett, the history best investor, and the world's richest man.

    You have been warned.
    If you insist on buying this overheated markets, you are on your own.

    Want more?

    Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well

    Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.

    Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

    Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

    The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

    * 1990 Chairman's Letter to Shareholders

    "If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period?"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 and depressed when they fall."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 sinking prices.

    * 1997 Chairman's Letter to Shareholders
  2. As is often the case, context is King.

    Since you've posted on a web site devoted to trading (and not exclusively to investing), do you somehow feel traders care more about the long term than they do about the "near future?"

    Warren quite clearly supports the idea of buying stocks moving higher - for those who plan to sell in the near future.

    Why do you feel Warren Buffet has provided incorrect advice?

    - Spydertrader
  3. I disagree. It's the SECOND dumbest thing. The FIRST dumbest is fighting the trend.
  4. Didn't buffet just buy BNI after it went up 80% from the lows? (Paying almost double what it was 9 months ago)

    I like buffet but he can be hypocritical now and then. I've heard him say that he doesn't make market calls (and the like) yet he exited the market before the crash in the 70's.
  5. Counterexample: AAPL

  6. tripleE


    registered in 2006, after 3 years, you are still as dumb as you were 3 years ago.
  7. A stock is never too high to buy, and never to low to sell.

    - Confusious (nah - I forgot who said that).
  8. the1


    This only applies if you are a trader. If you are an investor your job is to fight the trend - i.e. buy into falling prices when they get cheap. If I want to buy a stock like JNJ, PG, KO, or other blue chip stock I buy into large volume distributions if the price is right. You don't wait until the price starts going back up.

  9. Copy that.
  10. +1.

    The OP clearly knows nothing about trading.

    The whole essence of trend following is to buy breakouts and/or uptrends. How much money is invested in trend following CTAs?

    Ralph Vince's most recent book has a good section on trend following.

    Its a proven technique. Not something that needs to be discussed.

    As for Warren Buffett, he started pretty well off (His father was hardly a battler) and if you buy companies right after world war 2 and hold for 50-60 years its pretty hard to not be rich.

    His percentage annual return while impressive is not spectacular, rather its his TIME IN THE MARKETS which made him rich.

    He is almost 80. How old is Steve Cohen? Jim Simmons? Both these guys are in their 50s. In 25 years time they will have FAR MORE wealth than Buffett.

    And what about Ken Griffin he's only 41 he will far surpass Buffett when he gets to 80.
    #10     Dec 29, 2009