|Picture Depicts Markets Fluctuating Like a Pendulum Between Enthusiasm and Pessimism|
"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
In these golden words Warren Buffett, Chairman of Berkshire Hathaway is advising investors to consider market fluctuations in the form of ups and slides as a friend rather than an enemy.
Without market fluctuations - extreme once in a decade - extraordinary gains cannot be obtained. In the absence of market fluctuations there is no scope for capital appreciation. Stocks too will be bland like fixed deposits in a bank.
This is the first part.
The second part is to profit from the folly (of others) than participate in it.
What does this mean?
Buy stocks at or below their intrinsic value - not at their market peaks.
Innocent investors make the folly of entering the market when it is at its peak and buy shares at extremely high and unjustified prices. When the price slides or steeply corrects they panic and sell the investment at a loss. This is the folly Warren Buffett the Chairman of Berkshire Hathaway is advising not to participate in.
But how to profit from the folly?
Buy the shares of excellent companies at throw away prices when they are being dumped by others in panic.
In conclusion fluctuations are natural and inherent to markets. Capital appreciation or wealth creation takes place only on account of market fluctuations. My guru Warren Buffet, the siren of Omaha and Chairman of Berkshire Hathaway is advising investors to consider market fluctuations in the form of ups and slides as a friend rather than an enemy and to profit from and not participate in them.