How the likes of Warren Buffett became the likes of Warren Buffett…

What would you say if I offered you an investment opportunity that involved taking a diversified position in the industry that moves the machines, lights the ways, fuels the factories, heats the homes and provides the materials for a wide array of consumer products the world over when its cost per unit is roughly 50% below its recent high—and, best of all, will pay you a 4% annual dividend while you wait for the price to come back? Yeah, me too!

Would you worry if it takes, say, a few years for its price to move into the next uptrend, while, again, you’re getting paid handsomely to wait? Yeah, me neither!

I just described XLE, the Select Sector SPDR Energy ETF that occupies most of your (you clients) portfolios (although the “few years” part was simply to gauge your patience). And, if it doesn’t (occupy your portfolio), don’t worry, many of the stocks it holds are held in the large cap value allocation of your portfolio.

What I also just described is the logic that has made the likes of Warren Buffett—the bastion of long-term, patient, buy-when-there’s-blood-in-the-streets investing—the likes of Warren Buffett. Make no mistake, you want that to be you! Otherwise you become the other side of the trade for the likes of Mr. Buffett.

Seriously, who do you think is waiting patiently for the individual investor to throw in the towel and offer up the stocks (of the companies that will be here [profitably] for many tomorrows) in his/her portfolio at their lowest prices in months? Yep, that’s how the likes of Warren Buffett became the likes of Warren Buffett. Oh, and, in case you’re wondering, the likes of Warren Buffett held their existing positions right through the last peak, I assure you…

Now, all that said, I know how stressful down markets can be for some folks. In my view, it’s those times when the individual investor learns if he/she has the stomach to be in the market. And, by the way, there’s absolutely nothing wrong with not having the stomach for the market, life is too short! Here’s a snippet from that stock market conversation that makes this point:

Investor: Okay, but what if the market keeps dropping?
Adviser: It will keep dropping, I guarantee it.

Investor: What do you mean?
Adviser: I mean it will always keep dropping and it will also keep going up. It’s inevitable.

Investor: How could it keep dropping and keep going up?
Adviser: What I mean is, the market will always have periods when it drops and periods when it goes up. That we know for sure.

Investor: Okay, I get that, but what about my portfolio?
Adviser: Your portfolio will keep dropping and it will keep going up. If you’re a long-term investor, you’re in luck. The market has always kept going up more than it has kept going down — over the long-term.

Investor: But I don’t like the uncertainty?
Adviser: How much do you not like it? Are you losing sleep?

Investor: Yes.
Adviser: Then get out of stocks.

Investor: But I’ve been told they’re the best investment long-term?
Adviser: You’ve been told right, the best investment long-term – not always the best investment short-term. But is it worth losing sleep over?

Investor: But if I get out of stocks, what do I do with the money?
Adviser: Buy CDs and save every penny you can. You’ll likely have to save more to reach your long-term goals, but you’ll sleep much better.

Investor: I don’t think I’d sleep well only earning what CDs pay.
Adviser: Then learn how to sleep owning stocks

Click here for the entire conversation…

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