Anyone who has invested in stocks for a long period of time, realizes that the majority of stock prices can and do fluctuate greatly over time. This fluctuation is a regular and enduring feature of stock ownership. Wide fluctuations have occurred consistently in market cycles going back to the beginning of time. Those who study or have experienced past market cycles pay close attention to buying at relatively low prices for this reason.
For example, look at your securities prices over one year, two years,or five years. See what the lowest price was and the highest price was. Now divide the highest price by the lowest price. The result can be 1, 2, 3 or more times.The point is that stocks can and do fluctuate greatly over even shorter periods of time.
Benjamin Graham describes the market’s moodiness well in his book “The Intelligent Investor” when he refers to “Mr. Market”. As a business owner, “Mr. Market” provides you with a quote for your business every day. Somedays the price is wildly optimistic when his mood is enthusiastic. Other days, he is down in the dumps and quotes you an unrealistic low price. You should only use these quotes when they serve you. You know your business’s worth.
I find it interesting that even when the character of a company does not change significantly, the market may vastly overprice or underprice a stock. This knowledge can be used to ground your thinking and protect you from your proclivity to get wrapped up in the excitement.
The consistent fluctuation is the reason you should be buying at the lowest price you can get. Some may say this is obvious, but why do so many buy when the market is so high then? If you accept that the prices will change greatly over time and control your tendency to get wrapped up in the market momentum, you will be well on your way to improved investment performance.
So don’t get wrapped up in the excitement and follow the crowd over the cliff. Keep your powder dry until “you can see the whites of their eyes” before you buy! There will almost always be a “sale” in the future – if you can develop the tenacity to wait.
