How Does this Warren Buffett Quote Explain Market Decision Making?

Luke mentioned a Warren Buffett quote in one of his paid services this week, saying:

“Something different happens all the time. And that’s one reason economic predictions just don’t enter into our decisions. Charlie Munger, my partner, and I – in 54 years now – never made a decision based on an economic prediction. We make business predictions about what individual businesses will do over time, and we compare that to what we had to pay for them. But we have never said yes to something because we thought the economy was going to do well in the next year or two years. And we have never said no to anything because we were right in the middle of a panic.”

This quote explains the ideal decision-making process in the market. During bear markets, however, we all become obsessed with short-term trades and data.

While this isn’t the fun part of investing and not what drives stocks in the long run, it’s a necessary evil.

We see this happen during unusual economic and market activity. This is when all traders are short sighted and can only see the short term.

Take the 2008 recession, for example. Everyone was trying to time the housing market’s bottom so they could time the stock market’s bottom.

However, no matter if you invested in 2008 or 2009, when the housing market actually hit its bottom, you still made great money in the long term.

Within the three- to 10-year window, the profits from that investment were clear.

The bottom line is good companies thrive during booms and survive during busts. Inflation is cyclical and will come down eventually.

Nothing can stop technological innovation. As long as you’re invested in good companies, let patience guide you.

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