The wise old man you need to listen to
Fear creates opportunityFearful investors sell. Wide-scale selling reduces demand and pushes share prices down, which fuels more fear. Buffett likes those cycles because they create opportunities to buy good stocks at a discount.To be clear, a falling share price isn't always a good thing. Some stocks drop because the company's ability to generate shareholder value changes for the worse. At that point, the stock is worth less than it was before.But when investor sentiment is largely driving a downturn, good stocks lose value, too. And that's an opportunity for investors to scoop up shares at a discount. It's like buying designer shoes on sale -- the quality is still there, but the price is lower.
This would also mean the following in regards to the bear market according to The Motley Fool:
The basic formula for making money in the stock market is to buy low and sell high. Strategic investing in a bear market addresses the buy-low part of the equation. You can sell high later -- if you need the cash -- after waiting for the market to rebound and return to growth.
Bear market investing can ramp up your long-term wealth potential, but it's not for everyone. You'll need available cash plus the stomach to invest when share prices are falling, as well as the patience to wait for a recovery. With those caveats, the strategy that works for Buffett can work for you, too.
These social media gossipers are most likely goofing up yet they tend to act like they're "smarter" than Buffett
Just reading the pieces of advice by Buffett makes me think, "How many Filipinos anyway have spare cash to invest in?" or "Do they even know the basics of investing?" The idea of buying stocks high and selling them low is pretty much operating like you're closing down your shop. Shops that close down may sell at a loss to avoid wasting inventory. In business, there's the profit to look after. It's stupid to buy supplies when they're high to sell them at a low price later. That's why it's sound advice to buy less when prices are high and to buy more when prices are low. The same principle is somewhat applied to the world of buying and trading stocks. Yet, some people have been selling their stocks not because they bought faulty ones but because of the stock market fluctuation. These shares may belong to Jollibee, Ayala Land, SM, or any of the Top 30 companies that belong to the Philippine Stock Exchange Index (PSEI). Companies that enter the PSEI are of good reputation and will be good for buying low and selling high.
I may even want to ask the question if some of these social media gossipers bought too many stocks during a bull market (and may have borrowed a large sum that they can't even pay back) so they ended up selling at a loss during a bear market. I think the person I heard of attempted suicide after a failed stock investment may have done that. An advice Buffett has given is to invest money that you don't need now. I think that's the principle that runs my investment with AXA. I pay PHP 3,000.02 per month as money that I don't need now but I'm certainly going to want it with the returns later. The tip to stock investing is to invest surplus cash. If you don't have savings and you don't budget--how can you invest? It can start with investing for as low as PHP 5,000.00 either for direct trading or as Buffett advises, buy an index if one finds direct stock trading not to be their thing. I decided to buy more into the Philippine Smart Equity Index Fund for that reason. I think an extra 0.5% will be worth it to combine both passive and active management than just purely passive or purely active.
I guess these social media gossipers want instant gratification. I guess that's what led to Axie Infinity has the Philippines as its biggest market (read here). Just reading posts about saying AXA is a scam is making me wonder if these guys are ironically playing Axie Infinity thinking that it's an "investment" (read here). Many rode into Axie Infinity probably because of the promise of getting rich quick. It's as if they never learned their lesson during the days of pyramiding scams and Ponzi scams. It's pretty much like the gamblers' dilemma. A gambler can lose a lot and still go gambling because of that gambling addiction. They're probably still hoping to win that PHP 1 Million prize even if they've already had consecutive losses based on luck-based wins. That's why I even wrote about the irony of rejecting insurance and investments while having a gambling addiction (read here). I guess they're treating the stock market like some mega-casino. However, losses in stock marketing only happen during wrong timing, selling stock below the invested amount, buying too many stocks that you're out of cash for daily needs, or investing in stocks of a company that's performing badly that you had to sell it off. Stock market investing is all about managed risk and not random chance. Sure, factors like industry performance, company performance, public perception, and economic performance can be unpredictable are there. However, it's not a wager when you decided to buy devalued stocks from reputable companies for selling later on.
As Buffett said, temperament wins over intellect. This temperament means not taking satisfaction in joining or going against the crowd. I think some of these social media gossipers are graduates from schools from the U-Belt universities in Manila. I wanted to enter the Ateneo De Manila University (ADMU) in order to show off or "prove my worth" to my folks. Yet, so many people who took the ADMU exam flopped. A former foe turned friend of mine took the ADMU exam, and failed, but now he's a good sales manager. You can have a good intellect and be a financial fool at the same time. That event happened to me when I allowed a person to buy in credit believing she would pay it back. Until now, the said person never paid it back. Some people who established big businesses may have lost millions to a fair-weathered friend. We tend to become financial fools at some point. The question is if we choose to remain financial fools. Some people choose to remain financial fools because it "feels good"--pretty much like a person who knows dangerous drugs are harmful but takes them anyway to feel high. The important thing is to balance temperament and intellect. Temperament makes better use of stock knowledge than one's intellect. Intellect is just how fast a person learns. A person may not be intelligent but a good temperament may make that person earn big in the stock market.
An Inability to Recognize Lack of Skill and Mistakes
Dunning suggests that deficits in skill and expertise create a two-pronged problem. First, these deficits cause people to perform poorly in the domain in which they are incompetent. Secondly, their erroneous and deficient knowledge makes them unable to recognize their mistakes.A Lack of Metacognition
The Dunning-Kruger effect is also related to difficulties with metacognition, or the ability to step back and look at one's own behavior and abilities from outside of oneself. People are often only able to evaluate themselves from their own limited and highly subjective point of view. From this limited perspective, they seem highly skilled, knowledgeable, and superior to others. Because of this, people sometimes struggle to have a more realistic view of their own abilities.A Little Knowledge Can Lead to Overconfidence
Another contributing factor is that sometimes a tiny bit of knowledge on a subject can lead people to mistakenly believe that they know all there is to know about it. As the old saying goes, a little bit of knowledge can be a dangerous thing. A person might have the slimmest bit of awareness about a subject, yet thanks to the Dunning-Kruger effect, believe that he or she is an expert.Other factors that can contribute to the effect include our use of heuristics, or mental shortcuts that allow us to make decisions quickly, and our tendency to seek out patterns even where none exist. Our minds are primed to try to make sense of the disparate array of information we deal with on a daily basis. As we try to cut through the confusion and interpret our own abilities and performance within our individual worlds, it is perhaps not surprising that we sometimes fail so completely to accurately judge how well we do.
Social media gossipers really have little to no credibility. Some of them are probably just spending money left and right, heavy on debts caused by mismanagement (and maybe, ironically complaining about the national debt while rejecting economic reforms to pay that debt), may have a gambling addiction, and so on. Meanwhile, Buffett knows investing and his fortunes prove it. I'm not saying one should be as rich as Buffett to be credible. However, listening to Buffett and doing basic sound financial practices can certainly keep one from becoming a loser and still have money for security reasons.