If the stock market is known for one thing, it’s known for its volatility. The prices of individual stocks and the market as a whole will bring go up and down, usually daily. Sometimes, the movement in prices can be quite wild. This instability can lead to fear in the general population. According to Warren Buffett, this is the time to be aggressive. One of his most famous quotes states, “Be fearful when others are greedy. Be greedy when others are fearful.”
Buy When Stocks Are on Sale
Most people take the opposite approach from Buffett. The majority of investors buy when the markets are at a high. This leads to euphoria over the market, and people pile in because they believe stocks will keep going up forever. Usually, this is right about the time at which the market is going to fall. Some of these falls can be quite vicious. Those who bought at the market highs will frequently sell somewhere near the bottom. This is the way people lose money on stocks and mutual funds. It’s time to buy. Effectively, when the market drops, stocks are on sale. Those who buy near the bottom of the market cycle will usually see some pretty impressive gains in relatively short order. Buying undervalued stocks is how Buffett has made his billions.
It Can Pay to Buy When Stocks Are Up
This advice might seem as though it flies in the face of the Warren Buffet quote. However, it can still be a good idea to buy when stocks have been going up for a while. The main concern should be euphoria. When investors are piling in at record numbers because they believe stocks will continue to go up, it might be a good idea to stay away. On the other hand, if people are staying out because of fear prices could go down while the market is up, there could still be room for the market to run. The fear factor goes up when the market is down or when there is fear, it could go down.
The stock market can seem unstable because prices change every day. By buying into fear, an investor can greatly increase his or her returns. This is the best way to capitalize on volatility.
About Raging Bull Trading
Raging Bull Trading is a trading program that teaches both new and experienced traders about the art of trading and the stock market. Originally launched in 2010 by professional traders Jeff Bishop and Jason Bond, Raging Bull Trading offers a comprehensive course on mastering stock trading from industry experts. The program includes lessons on stock picks, stock ideas, how to get started in trading, and an overall stock market education.