So in March 2020, the Dow and S&P 500 had their worst week since 2008…
As famed value investor Shelby Davis observed: “You make most of your money in a bear market; you just don’t realize it at the time.”
by Jason Zweig writing for The Wall Street Journal, March 10, 2020
“Benjamin Graham, the great investment analyst and Warren Buffett’s mentor, can help you navigate the market’s latest storm. Should you jettison some stock or stay the course? How should you act now to reduce the odds that you will kick yourself later for taking too much risk or too little?”
First, determine whether you are an investor or a speculator. “The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices,” Graham wrote. The speculator, on the other hand, cares mainly about “anticipating and profiting from market fluctuations.”
The primary reason many individuals fail as long-term investors, Graham said in 1972, is that “they pay too much attention to what the stock market is doing currently.”
Intelligent investors, he insisted, don’t need superior intellect, training or expertise. Instead, intelligence consists of patience, independence and self-control.
Graham wrote, you should reconcile yourself “to the probability rather than the mere possibility” that stocks will fall by 33% or more at least once every five years.
Graham advised keeping a minimum of 25% and a maximum of 75% in stocks, with the rest in bonds. As stocks become cheaper, inch your exposure to them upward; as they get more expensive, you should edge your position downward.
Respect the difference between what he called “timing” and “pricing.” Timing is the attempt to guess what the market is going to do next, a form of forecasting that Graham believed inevitably ends in speculation. Pricing is simply the observation that when the market goes down, stocks get cheaper.
The recent dramatic declines in stock prices, as Graham taught, should make you incrementally more enthusiastic about buying stocks—not less. If you are “the right kind of investor,” he wrote, you should “take added satisfaction” from knowing that your actions are “exactly opposite from those of the crowd.”
Thanks to one of my favorite financial writers Jason Zweig for this reminder and insight.
Source: Financial Planning for Women