What can investors learn from investment moves made by Warren Buffett or things he has said decades ago?

A lot, as I see it.

Good investing wisdom does not lose its value. Indeed, Buffett himself learnt much from his teacher Ben Graham, who was at that point drawing on decades of investing experience.

This year has seen markets perform strongly on both sides of the pond, even though the economic outlook remains uncertain.

It has made me think again of an old Warren Buffett expression.

Learning from a proven master

Buffett has lots of wisdom to offer on markets that ride high.

One famous expression is “to be fearful when others are greedy, and be greedy when others are fearful”.

That could apply in today’s market, as might, “you don’t find out who’s been swimming naked until the tide goes out”.

In other words, a lot of investing moves that may look very profitable today could look very different if there was a stock market crash.

Valuing a good night’s sleep

Helpful though they are, those are not the Warren Buffett quotations on my mind right now.

Rather, I have been thinking about him saying, “when forced to choose, I will not trade even a night’s sleep for the chance of extra profits”.  

What is Buffett really talking about here – and why do I think it might be relevant now?

Managing risk is a year-round job

Most of us have had moments in our life when something kept us up with worry at night. It is not a pleasant experience.

Some such situations may be out of our control. By contrast, the investment choices you make are totally up to you.

I interpret Buffett as saying he does not think it is worth stepping outside of his comfort zone of risk, even if the potential gain from an investment looks attractive.

Each investor’s risk tolerance is different, and their personal comfort zone is an individual thing too. But a common element is that risks exist no matter how well the market is doing. When it is riding high, some investors forget that.

Smart ones, like Warren Buffett, try not to get carried away by greed and instead always consider the risks when buying a share.

I’m applying this thinking now

For example, consider Space Exploration Technologies (NASDAQ: SPCX).

Like many investors, I have watched with interest as SpaceX stock has moved up and down since it listed earlier this year. I see real potential in its business as it has a large, deep-pocketed customer base, proven and often proprietary technology, and an environment of growing customer demand.

However, I think the valuation looks silly. The company is loss-making and burning through cash.

Still, there is a voice in my head that says maybe I should still consider investing as over the long run SpaceX’s stock price could potentially get much higher even though its valuation already looks too high.

But what if I put hard-earned cash in and the stock crashed? That might keep me up at night.

It is a possibility, as SpaceX faces risks including growing competition and heavy cash burn from investing in AI.

So I am ignoring it and looking for more attractively priced shares elsewhere in the market.

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Christopher Ruane does not hold any positions in the companies mentioned.