Business magnate Warren Buffett believes that people should not buy stocks unless they expect to hold them for a long time.
In a video shared by Instagram handle Warren Buffett Videos, the Berkshire Hathaway CEO was seen advising investors to be prepared for stocks to fall as much as 50 percent.
“There have been three times in Berkshire history when the stock went down 50 percent,” he added. “Now if you owned it or borrowed money, you could have been cleaned out.”
Warren Buffett added that there was nothing wrong with Berkshire when its stock plunged. He emphasised that investors need to have the right psychology or they will end up buying and selling shares at the wrong time, thinking they have to act because of price fluctuations or depending on what others tell them.
He said holding stocks required the same amount of financial and psychological preparation as holding a farm.
In the past, Buffett has advised people against investing in stocks simply because they expect their prices to increase.
He had told CNBC in an interview in 2020 that people should invest in companies that they understand and whose stocks they believe will provide long-term value.
“Nobody buys a farm based on whether they think it’s going to rain next year," he had said.
Buffett himself has three rules to help him decide which companies he should invest in.
“First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price,” he had to Berkshire shareholders in 2019.