Buffett: Take Emotion Out of Investing

Wednesday, 24 Jun 2009 11:02 AM

By Dan Weil

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Investors would perform much better if they took emotion out of the equation, says iconic investor Warren Buffett.

“The best advice I’ve received on investing I received in chapters eight and 20 of ‘The Intelligent Investor,’” he tells Fortune. That’s a seminal book written by Columbia University professor Benjamin Graham in 1949.

“That’s the framework for what I do in investing. Investing is simple but it’s not easy,” Buffett says.

And why isn’t it easy? “Because emotions get in people’s way or greed and that sort of thing,” Buffett says.

“They get all excited about stocks when they’ve gone up recently, and they get depressed when they’ve gone down.”

The key is to “take the emotion out of it and just simply stick with good businesses,” Buffett says.

“The Dow Jones average in the 20th century went from 66 to 11,400. How could you not make money during a period like that?”

Of course, many didn’t. And that’s “because they tried to play in a game they shouldn’t be playing in: buying and selling stocks,” Buffett says.

“And of course there’s all kind of encouragement to do that because there are people who are getting paid if they buy and sell stocks.”

Many agree with Buffet that the buy-and-hold strategy still works.

“The appeal of buy-and-hold isn't that it works best in all markets … but that it works over the long term: across all types of markets,” according to Paul Elliott of The Motley Fool.

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