For people embarking on an investing career, and or with a minimum of 10 years to invest, a LARGE DROP in the stock market can be a GOOD thing!
Warren Buffett sums this seemingly illogical and contradictory behaviour up beautifully:
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during this 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 net sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.“
Buffet goes on to illustrate this thinking with a very simple example:
“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”
Wise words that help crystalize the “head space” required to be a successful investor.