If the title of this blog sounds strange, let me assure you it felt odd to type as well. Despite how counterintuitive it sounds, there is logic to this statement. Investors in their 20s, 30s, 40s, and early 50s who are regularly adding to brokerage accounts, IRAs, or company sponsored retirement plans would stand to benefit from a decline in stock market prices.
Before I dive deeper, let me address the fact that older investors would view this differently. A heavy weighting toward stocks is advisable for investors with a long-term horizon, such as young investors with retirement goals. For investors with a shorter time horizon, such as retirees or near-retirees, risk management strategies should be used to offset the uncertainty of investing in stocks. As investors age, a general rule of thumb is to shift their investments from riskier assets (stocks) to more conservative assets (bonds, money markets, or insurance products) as they close in on needing money for living expenses. Speak with your advisor to determine the most appropriate asset mix for your individual situation.
I cannot envision a circumstance where I will sell out of the US or international stock market in my retirement accounts for 20+ years, although I certainly might change what I own. Hypothetically, I am not going to use the money for decades, I would like it to grow, and historically the best way to do that is to be a long term investor in stocks. Investors from their early 20s to early 50s with a proper financial plan in place are not likely to need to sell their stocks in the next 10 years. Therefore, these are the individuals who would benefit from falling prices. Rather than explaining further, I will allow Warren Buffett to take over. Pay particular attention to the text highlighted in blue.
Views on the market and where it’s going?
I have no idea where the market is going to go. I prefer it going down. But my preferences have nothing to do with it. The market knows nothing about my feelings. That is one of the first things you have to learn about a stock. You buy 100 shares of General Motors (GM). Now all of a sudden you have this feeling about GM. It goes down, you may be mad at it. You may say, “Well, if it just goes up for what I paid for it, my life will be wonderful again.” Or if it goes up, you may say how smart you were and how you and GM have this love affair. You have got all these feelings. The stock doesn’t know you own it.
The stock just sits there; it doesn’t care what you paid or the fact that you own it. Any feeling I have about the market is not reciprocated. I mean it is the ultimate cold shoulder we are talking about here. Practically anybody in this room is probably more likely to be a net buyer of stocks over the next ten years than they are a net seller, so every one of you should prefer lower prices. If you are a net eater of hamburger over the next ten years, you want hamburger to go down unless you are a cattle producer. If you are going to be a buyer of Coca-Cola and you don’t own Coke stock, you hope the price of Coke goes down. You are looking for it to be on sale this weekend at your Supermarket. You want it to be down on the weekends not up on the weekends when you tend the Supermarket.
The NYSE is one big supermarket of companies. And you are going to be buying stocks, what do you want to have happen? You want to have those stocks go down, way down; you will make better buys then. Later on twenty or thirty years from now when you are in a period when you are dis-saving, or when your heirs dis-save for you, then you may care about higher prices. There is Chapter 8 in Graham’s Intelligent Investor about the attitude toward stock market fluctuations, that and Chapter 20 on the Margin of Safety are the two most important essays ever written on investing as far as I am concerned. Because when I read Chapter 8 when I was 19, I figured out what I just said but it is obvious, but I didn’t figure it out myself. It was explained to me. I probably would have gone another 100 years and still thought it was good when my stocks were going up. We want things to go down, but I have no idea what the stock market is going to do. I never do and I never will. It is not something I think about at all.
When it goes down, I look harder at what I might buy that day because I know there is more likely to be some merchandise there to use my money effectively in.
• Source: Warren Buffett Lecture at the University of Florida Business School
• URL: http://www.thebuffett.com
• Time: October 15th 1998
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As a Family Wealth Advisor, Joe assists business owners, executives, and affluent families in the areas of estate planning, business succession planning, and wealth management. Joe takes pride in identifying a variety of planning options and opportunities followed by clear guidance to be sure his clients make the best possible decisions for their business and family. Through speaking engagements, Joe has addressed multiple trade associations to include the Restaurant Association of Maryland (RAM) and the National Automobile Dealers Association (NADA) Academy.
Joe holds the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation and is a Chartered Retirement Planning Counselor (CRPC®). He is a member of the Financial Planning Association (FPA) and Financial Services Institute (FSI). While earning his bachelor degree at Washington College, he was awarded the Department of Business Management Award given to a graduate who shows outstanding qualities of scholarship, character, and leadership. Joe holds his Series 7, 66, and Life and Health Insurance license. He has also been recognized for a second year as a Five Star Wealth Manager,as featured in Baltimore Magazine. To email Joe: firstname.lastname@example.org