In the well-known book Beating the Street, Peter Lynch describes annual meetings organized by Barron’s of eminent investors and money managers. He said that they would spend a great deal of the time at the meetings worrying about all the things that could go wrong with the economy and why this was a bad time to invest in stocks. For example,
In 1987, we worried that the dollar was collapsing, foreign companies were dumping their products in our markets, the Iran-Iraq War would cause a global oil shortage, foreigners would stop buying our stocks and bonds, the consumer was deeply in hock and unable to buy merchandise, and President Reagan was not allowed to run for a third term.
The point is that there always have been, and always will be, “good” reasons for not investing in the stock market. However, experience has shown over and over that the best results are obtained by focusing on quality companies selling at reasonable prices and ignoring the doom and gloom of press reports, television news, and taxi driver forecasts.
Warren Buffett said something similar in the 1994 Annual Report of Berkshire Hathaway.
We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.
But, surprise — none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is a foe of the faddist, but the friend of the fundamentalist.
A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.
In the 2006 (May 2007) annual meeting of Berkshire Hathaway, Buffett stated, "Something bad will happen, but you could go back at anytime in the last 100 years and say the same thing … you can freeze yourself out indefinitely."
Ending with similar words by Peter Lynch, “The key to making money in stocks is not to get scared out of them.”
