The Dow Jones Industrial Average is what Main Street (the public) knows the most. So those that aren’t investors or newer investors watch it more. Pros watch the S&P 500 more. Why? It’s the 500 largest companies in America. The Dow is only 30 mature stocks in America.
Most of the time, we look at the S&P 500. It’s what I’ve always looked at the most. However, there are times where we take a look at the Dow, NASDAQ, Russell 2000, Dow Transports, etc.
Because there are always some assets that go up in market downtrends. A market downtrend means “most” stocks are declining. But it doesn’t mean “all” assets are declining. Secondly, we hope some of ours decline some more so we can get averaging downs in.
Warren Buffett doesn’t go all to cash in a downtrend. Yet he has cash on the sidelines to deploy during a downtrend so that downtrends become his friend.
Also, going all out, if any of our positions soared, we’d lose out on those missed opportunities. Yet if they go lower, we can get averaging downs in and lower breakevens for ultimately higher overall returns.
Buying fundamentally strong companies that are fundamentally cheap is our starting point. Then 2 wide spaced (percent wise) averagings, if they happen, give us even greater/deeper values. It’s why Buffett says he hopes his stocks go down. Why? So he can buy more at lower prices and lower his average breakeven price.
Listen to have differently Buffett thinks than most people:
… on market sell-offs. Buffett does not believe they are something to be feared, rather they are an opportunity.
He explained during the 1994 annual meeting of Berkshire Hathaway:
“We are going to be buyers of things over time. And if you’re going to be buyers of groceries over time, you like grocery prices to go down. If you’re going to be buying cars over time, you like car prices to go down. We buy businesses. We buy pieces of businesses: stocks. And we’re going to be much better off if we can buy those things at an attractive price than if we can’t.”
…“So we don’t have any fear at all,” Buffett added during the ’94 meeting. “I mean, what we fear is an irrational bull market that’s sustained for some long period of time.”
Buffett would go on to show he really meant what he said when he put this philosophy to work during the financial crisis, when many investors were panic selling. In October 2008, he wrote an Op-Ed for The New York Times saying he was buying American stocks and other investors should, too.
…“You, as shareholders of Berkshire, unless you own your shares on borrowed money or are going to sell them in a very short period of time, are better off if stocks get cheaper, because it means that we can be doing more intelligent things on your behalf than would be the case otherwise,” he told the audience at his annual meeting.
Here’s more of his thinking: https://markets.businessinsider.com/news/stocks/warren-buffett-10-best-quotes-investing-market-crashes-2020-5-1029191115#-never-bet-against-america-that-is-as-true-today-as-it-was-in-1789-during-the-civil-war-and-in-the-depths-of-the-depression-8
Here’s more: https://www.youtube.com/watch?v=UNeFtyoZoSI
It’s our job to think like this and to not think like what’s natural to us. And when we practice thinking like Buffett for long enough. over time, it does become our “new natural”. But that takes time. It’s natural for me, but it’s because I’ve been practicing it for so long.