Berkshire Annual Letter 1997 (Part 3)
If you intend to eat hamburgers all your life and you are not a cattle producer, do you prefer higher or lower prices for beef?
If you are going to buy a car from time to time but are not an autor manufacturer, would you prefer higher or lower car prices?
The answer to these two questions are obvious. Now, for the third question.
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period. This is where many investors get their answer wrong. They get happy when prices rise and sad when they fall.
Esssentially, they are rejoicing because prices have risen for the “hamburgers” they will soon be buying. This makes no sense.
Only net sellers of equities in the near future should be happy at seeing stock prices rise.
For shareholders in Berkshire, they are automatically saving as Berkshire “saves” for them by retaining all earnings. A falling market allows Berkshire to buy equities and business at bargain prices.
So, next time you see a headline “Investors lose as markets all”, change it in your mind to “Disinvestors lose as market falls — but investors gain.”