“Be fearful when others are greedy, and greedy when others are fearful,” Warren Buffett says. Countless people know the saying. Most of them agree with it. Barely anyone can actually act on it.
“If I, today, imagine how I’d respond to stocks falling 30%, I picture a world where everything is like it is today except stock valuations, which are 30% cheaper,” Morgan Housel writes in Same as Ever. “But that’s not how the world works. Downturns don’t happen in isolation. The reason stocks might fall 30% is because big groups of people, companies, and politicians screwed something up, and their screwups might sap my confidence in our ability to recover.”
It’s easy to believe you’d handle a challenge well if you think about that challenge in a vacuum and from your current, comfortable position. But reality hits different. “I’ll buy Apple stock when it falls 30%.” Sure, but what are the odds of Apple stock falling that much while everything else stays peachy? Close to zero. And when everything falls 30%, the news will be full of headlines proclaiming the end of the world. Red, red, red is all you’ll see. Your neighbor might have to close his store, and suddenly, saving that extra cash looks a lot better than putting it into the market.
The same applies to great success, of course. One day, your portfolio might tick over the $1 million mark, but you won’t feel all that different. You’ll still go to work, eat Kentucky Fried Chicken, and wake up with a headache every now and then. “If you think of your future self living in a new mansion, you imagine basking in splendor and everything feeling great,” Housel goes on. “What’s easy to forget is that people in mansions can get the flu, have psoriasis, become embroiled in lawsuits, bicker with their spouses, feel wracked with insecurity and annoyed with politicians which in any given moment can supersede any joy that comes from material success.”
“Reality is always lived with the good and bad taken together, competing for attention” — and we struggle to allocate that attention in the right proportions, in the moment but especially in advance.
Make your plans, steel your nerves, and prepare as best as you can, but remember: Reality hits different. Set up reminders to recall your intentions when those intentions will feel far away, and expand the scope of what you believe the future can look like. It’s much harder done than said, but with the right knowledge, habits, and attitudes in place, you can be ready when the storm hits — and perhaps you’ll become one of the few who can actually “be greedy when others are fearful.”