Riding the Emotions

In the markets it is quite common to ride a wave of emotions as stocks go up and down. It is of course totally silly but is just unavoidable for most of us. Warren Buffett would say that our emotions should actually be inversely correlated to the market i.e. to be greedy when others are fearful, and fearful when others are greedy. Seventeen years ago, I took this quote of Buffett's quite literally, and brought Fortescue Metals just as the 2008 stock market decline started, buying at $9, and watching the stock fall to $2 before it started to rise again. It was a mistake I regret (and remember vividly) to this day.

I have mentioned this before, but during the decline this year, I have had some cash on the sidelines; and I have so far used this cash to buy more Berkshire, buy some Fonterra, and at the start of May I brought more index ETFs. These small additional investments have so far worked out quite well. Berkshire in particular has done great. Their portfolio is 50% in cash, as Buffett made a lot of stock sales last year. A decision that in retrospect was very prescient. The market has had a good first couple of days this month, and I am hoping is on the up now. Particularly since China has said that it might be open making a trade deal with the US.

My emotions are riding high at the moment, not so much because the market has been up recently, but because I had some cash and made additional buys at the right time. Of course, the market could go into reverse mode on Monday, and my emotions will go into the gutter. But then I will continue to dollar-cost-average into the market, by buying more index ETFs at the end of May. It is always worthwhile to have some cash on the sidelines so you can take advantage of down markets. But if you don't, keep your money where it is. History has proven that over time you will do well to put your emotions to the side, and to stay invested.