One man’s panic is another man’s opportunity

While scanning the latest performance of my stocks on my iPhone, I noticed a curious news article linked to Berkshire Hathaway.

Apparently, CNN Money was granted tour of the Oracle of Omaha’s office. I watched this short clip, and noticed how he keeps certain inspirational news stories framed and hanging on his walls. One was what looked like a stock certificate. It apparently involved a company that went into a panic.

During the tour, Warren Buffett indicated that he keeps his eye on when companies enter a panic, because that is the best time to buy.

You see, this investing philosophy he has demonstrated for decades shows that a company’s business may be solid. Their products may be good. But certain circumstances can make stock investors panic and try to dump their stock. When the herd is evacuating, it may be your best buying opportunity.

When everyone is buying up a certain equity, that may be a sign that it’s stock price is becoming overvalued, and would actually be time to sell.

There is more to this than just buying low and selling high. Some companies nosedive right before they dive. This is where you have to do your homework and understand the fundamentals of the business before buying. And I said fundamentals of the business, not fundamentals of the stock. Stocks suffer from a lot of human emotion. There are many companies out there that are solid and doing well.

You can say as much about Apple. But in the past couple of months, their stock price has swung between $700 and $500, with news reports about people predicting the best to the worst. I think Apple is a solid company with plenty of cash reserves to weather many storms. They have built pipelines of popular products, several which I use, and continue to develop newer pipelines leading to continued sales. Whenever I visit an Apple store, it isn’t empty. Instead, they are full of customers. I have been there to get my laptop fixed, and the service was excellent. I have also been there to buy the latest iPhone 5, and again the service was excellent. These are all the hallmarks of a top notch company, catering to their customer’s needs, and selling valuable products. These types of companies last a long time.

To step back from this high level analysis of their business and instead look at the historical trend of their stock, it is clear Apple has had strong growth at least since the 80s. This is what leads me to believe that they will continue to show good growth for many years to come. They didn’t reach this level of quality overnight. They have been building it for years.

When I see the stock panic, I evaluate whether I have enough cash on hand to invest in more Apple stock vs. my other holdings, or if I should route that money towards my real estate portfolio. I have a strongly armed set of rental properties that are already paying me well, even though I have 75% occupancy. This is a good position to be in, and I look forward to next year and tracking my net worth, to see it grow. I hope to be able to buy up more Apple next year. The key is to have enough reserve cash standing by to buy up when a big drop strikes.

Is your portfolio well armed with solid companies and solid real estate investments? If not, then recheck your assumptions. Are you just following the herd of investors that are throwing money at their 401K and hoping it will work out in the end? If so, you may be in for a rude awakening. I just hope your awakening comes sooner rather than later, so you have time to do something about it. Drop me a line if you want to discuss what’s in your portfolio.

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