This post is about the Warren Buffett quotes on Bull Markets & Crowd Thinking
When you think about stock market investors, what comes to mind?
Do you picture an army of Ivy League educated MBAs making detailed and rational decisions about what to invest in? There are a lot of extremely intelligent people in the investing industry… But markets as a whole are prone to irrationality. People are greedy and fearful. When easy money is around (bull markets), greed pushes (Crowd Thinking) people to take greater risks than they otherwise would.
Here are some Quotes of Warren Buffett on Bull Markets & Crowd Thinking
“You need to divorce your mind from the crowd. The herd mentality causes all these IQ’s to become paralyzed. I don’t think investors are now acting more intelligently, despite the intelligence. Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”
“Nothing sedates rationality like large doses of effortless money.”
Bull markets make mediocre investors think and believe they are investing geniuses because of the gains they see in their investment account.
“In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”
You have to do things differently to avoid taking too much risk during market manias. Misery loves company. No one gets blamed for failing when everyone else is.
“Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press”
Bubbles typically start with a good reason. Those who get in early do well. It’s the individual investor who is the last to catch on that ends up holding the bag.
“What the wise do in the beginning, fools do in the end.”
All bubbles burst, eventually. When they do, investors relearn the same lessons over again.
“But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street — a community in which quality control is not prized — will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.”
Being able to maintain an even keel and not overreact to optimism or pessimism is critical for investing success.
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Sober judgment is a commodity in a world of emotional investors.
“You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K.”
Does this mean you should always do what is opposite of the consensus? No, you should act irrespective of the consensus. Sometimes the crowd will agree with you, sometimes it doesn’t. You should be equally comfortable with either situation.
“In some corner of the world they are probably still holding regular meetings of the Flat Earth Society. We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don’t.”
Controlling behavior is a much larger part of investing success than many investors first realize.