Billionaire investor Warren Buffett, who built Berkshire Hathaway's massive portfolio, thinks that some people should not own stocks and do “dumb things” when prices drop.
Speaking to CNBC in 2018, the Oracle of Omaha reasoned that the longer you hold a stock, the less risky it becomes, and that selling is a “dumb thing” to do when your stock price drops.
Warren Buffett's advice: 'If you're gonna do dumb things…'
Commenting on percentage rise and fall of stock markets, the ace investors noted that stock price movements are “nothing” when comparing it with businesses that earn 12% on equity and reinvest, adding that the S&P, has “for decades, earned on tangible equities a lot more”, which translates into more higher prices.
“The way people think about it (investing in equities, bonds, etc.) is, they do some very silly things. Some people should not own stocks at all because they just get too upset with price fluctuations. If you're gonna do dumb things because your stock goes down, you shouldn't own the stock at all,” he stated.
When asked what he means by dumb things, he said “selling when a stock goes down”. Adding, “If you buy your house at $20,000 and somebody comes along and says: 'I'll pay you $15,000', you don't sell it because the quote's $15,000.”
He added, “Some people are not actually emotionally or psychologically fit to own stocks. But I think more of them would be, if you get educated on what you're really buying, which is part of a business and the longer you hold stocks the less risky they'd be.”
WATCH: Warren Buffett on why some people should not own stocks
‘Grab big opportunities, but think through very hard’
Known for his long-term approach to stocks, sticking to fundamentals, and taking calculated but thoughtful risks, Warren Buffett in 2001 gave students at the University of Georgia's Terry College of Business some evergreen advice on seizing opportunities and measuring risk using the “20-slot punch card” method.
“Big opportunities in life have to be seized. We don’t do very many things, but when we get the chance to do something that’s right and big, we’ve got to do it,” he said, adding that taking up such opportunities in small measures, “is just as big of a mistake almost as not doing it at all”.
Further, giving students a guiding metric to use when making decisions, Warren Buffett said they would be better off thinking of opportunities marked on a punch card with 20 punches on it, where “every financial decision you made, you used up a punch”.
He explained that using this approach, “You’d get very rich, because you’d think through very hard each one.” He added that limited chances to invest mean that one would spend time thinking and weighing the pros and cons, instead of making rash and impulsive decisions.