What if Warren Buffett said the stock market will decline 80%?
Did I get your attention and maybe quicken your heart rate with my article title? If so, I apologize. Warren Buffett did NOT say the stock market will decline 80%. I was only giving you an example of how we react to fear.
In the jungle, fear kept our ancestors alive by warning them off from doing stupid things like trying to pet that cute saber tooth tiger. It’s why we’re here today. But in the financial “jungle,” fear tempts you to sell at lower prices during scary markets instead of sitting tight. It causes you to place too many trades that hurt instead of help your money-making resolve.
Unfortunately, you’re not the only one who knows about the power of financial fear. Instead of helping you manage your fears, those with ulterior money-making motives feed your fearful frenzy.
Financial product providers, for example, can make a lot of money by playing on your excitable emotions. And the financial press often preys on people’s fears as well. It is well-known that patient investors like Warren Buffett are best positioned to achieve their personal money-making goals. But would you tune into a weekly show that simply encouraged you to ignore current events and stick with your existing plans? While this is usually good financial advice, I suspect it would be a recipe for media bankruptcy.
That’s why many in the financial press are in constant “crisis mode.” Breaking news increases ratings and sells advertising, so they want you to buy that the presidential election, or Brexit, or the situation in Greece or China – or whatever – requires your immediate financial attention. They tempt you into believing you must get out now or pile in right away instead of just sitting tight as Buffett does.
Be more like the real Buffett. Avoid scare tactics and you’ll be a better (if slightly less entertained) investor.