“What kind of a wish is this?” you might wonder. “As an investor, why doesn’t he want a bull market, and that too for the next 10 years? Has he lost his senses?”
Well, before you exercise your brain more and think that I am out of my mind, let me make one thing clear.
I, like you, love seeing stock prices rise.
I love it everytime a stock I own surges, and makes me richer on paper.
But even then, I hate the sight of a bull market – when stocks rise 30-40% on an average annually – and don’t want to see one for the next 10 years!
10 reasons I hate a bull market
- I hate the ugly emotions – like greed and arrogance – that evidence themselves in a bull market.
- I hate that a bull market makes stock investing a gamble.
- I hate it when small investors are fooled by a bull market into buying junk stocks that they wouldn’t have touched, in normal times, with a 10-foot pole.
- I hate it when people – especially stock market experts – say foolish things during a bull market.
- I hate that a bull market reveals the dark, small, foolish side of human nature. I think we are smarter than what we appear to be during a bull market.
- I hate to see financial advisors compromise their integrity during a bull market.
- I hate to see retirees gambling in a bull market and then losing their lives’ savings.
- I hate to see young investors unfairly penalized by a bull market (most investors under the age of 30 who start investing in a bull market, don’t get the chance to build a portfolio of solid companies at cheap prices).
- I hate the emotional exhaustion that a bull market brings along.
- I hate it when a bull market ends badly (and it always does!) and leads investors to swear off of stocks forever.
Why I don’t want a bull market for next 10 years
Here is what Warren Buffett had to ask investors in his 1997 letter to shareholders…
If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?
These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that 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.
In effect, they rejoice because prices have risen for the ‘hamburgers’ they will soon be buying! This reaction makes no sense.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Now at 33, I expect to be a net buyer of stocks over the next 10 years. And this is the reason I would be happier seeing sinking (or just moderately rising) stock prices…not a bull market that takes stock prices beyond my comfort levels.
What about you? Do you expect to be a net buyer or net seller of stocks over the next 10 years? Let me know in the Comments section below.
——— Safal Niveshak’s Art of Investing Workshop in Bangalore ————
Just 2 seats remain for the Art of Investing Workshop in Bangalore on Saturday, 14th April 2012.