Warren Buffett Tells Value Investors To Resist The Temptation To Speculate

One of the world’s most successful and recognizable value investors of all time had some words of encouragement for struggling value investors this weekend.

At Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B)’s annual shareholder meeting in Omaha, Nebraska, CEO Warren Buffett said value investors don’t need to be rattled by their underperformance in recent years.

Buffett compared the risks of market speculation to the risks of gambling in a casino.

“There’s nothing more agonizing than to see your neighbor, who you think has an IQ 30 points below you, getting richer than you are by buying stocks, whether it’s internet stocks or whatever,” Buffett said.

As a result, Buffett said that even very smart people fall victim to the urge to speculate in the stock market during times stocks are performing well.

Related Link: Value Or Value Trap? A Closer Look At 4 Cheap Stocks

“And those who haven’t been through cycles before are probably a little more prone to speculate than people who have experience the outcome of wild speculations,” he said.

Since the market bottomed in early 2009, U.S. stocks have been steadily rising for more than eight years now, leaving anyone who has started their investing career in that time particularly susceptible to the risks of the next market downturn.

“Fear spreads like you cannot believe until you’ve seen a few examples of it,” Buffett said. “The way the public can react is really extreme in markets, and that actually offers opportunities for investors.”

Even though speculation has paid off handsomely for many investors throughout the bull market, Buffett’s value investing approach has also worked. Since the market bottomed in March 2009, Berkshire shares are up 255.6 percent, outpacing the SPDR S&P 500 ETF Trust SPY’s 251.7 percent gain.

Image credit: Fortune Live Media, Flickr