Mass pessimism or Warren Buffett's keys to success
Warren Buffett’s successful investment methods
Mary Buffett and David Clark have written a wonderful book, describing Warren Buffett's successful investment methods. "The new buffettology" includes the most lucrative tactical techniques that allowed the prominent investor to turn 105 thousand dollars to billions by benefiting from securities. This article reveals some secrets of the great rich man, whereas the book has to offer even more detailed contents.
An open secret
Warren doesn't speculate of the stock market, but he speculates on those who speculate on the stock market. What does that mean? Just that his main investment focus is targeted on those who try making quick profits. Those investors are generally pessimistic and "short-sighted", i.e. they have no necessary foresight. The billionaire has learnt to use those "defaults" in his best interests. The thirst for easy money forces those investors to make mistakes and take wrong decisions. However, their blunders have helped Buffet to become rich. Because fearful investors tend to get rid of the assets that don't yield quick profits, while Buffett-like investors buy them up and wait till their hour comes.
Warren Buffett is convinced that this kind of a strategy only suits the select few - those who are farsighted and don't react to short-term incentives that don't promise quick profits (Warren calls this "classic herd mentality"). A good investor does not react to daily messages. Buffett thinks, it's just a folly.
Phenomenon of good and bad news
"Good news phenomenon" is a situation when a growth of quotes is accompanied by good market news. This successful combination can make prices increase to the skies, Buffet thinks. "Bad news phenomenon" is a slump of quotes linked to bad market news.
It's very important to a successful investor to know these two regularities. Warren prompts investors to consider long-term economic force: buy cheap and make fortune in the future.
Three keys to success
Key number 1
Warren Buffett does not speculate on the bullish market, when quotes rise due to good news, nor does he buy high-tech companies' shares that rose in price during the internet boom (such as Yahoo’s, Priceline’s, Amazon.com’s, Lucent’s, CMGI’s and so on.) He reserves this chance for others.
Key number 2
Warren Buffett avoids popular shares, waiting for bad news. Result: a really cool company's shares tumble and Buffett buys them all up.
Key number 3
Personally from Warren Buffett: the prevailing reason for low quotes is pessimism, either related to economy in general, or to particular companies and sectors...We love pessimists because they lower prices.