One of CNBC's leading commentators Jim Cramer was quoted on the financial news site last week stating that he believed the recent sell-off is U.S. equities was primarily caused by worries over the reported cases of the Ebola virus in America. To "help" investors, CNBC also ran a story on: How to put on a hazmat suit – Thanks for the tip…..I think?
These types of sensationalist market 'worries' are a great example of the problem investors face – market noise and crowd thinking can be very distracting and harmful to long-term wealth accumulation.
Don't follow the crowd
Legendary investor Warren Buffett is fond of the analogy that:
In the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine.
It's this long-term focus on value which allowed Buffett to buy millions of dollars' worth of stock in American Express (Amex) during the infamous "salad oil scandal." Yes, laugh away – salad oil!!!
Just as Buffett did in 1962 with Amex stock, during the 2008-09 global financial crisis (GFC) savvy investors were busy scooping up great businesses such as Flight Centre Travel Group Ltd (ASX: FLT) and Ansell Limited (ASX: ANN) at just a fraction of the price they had been selling for in 2007. Investors, who bought stocks such as these when everybody around them was selling, are now sitting on huge gains.
Today, with the S&P/ASX 200 (INDEXASX: XJO) experiencing increased volatility and numerous stocks selling near their 52-week lows it will be investors who are prepared to focus on long-term value and not short-term market noise that will utilise cheaper priced shares to selectively buy stocks that are screaming value.
