What Can Warren Buffett Teach Us About Cyprus?

One of the most important things to remember about Mr. Market is that you can ignore him. If the Cyprus situation is causing too many unknowns for you, take a step back.

Buffett writes, “He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you. But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.”

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Even though central banks around the world are devaluing fiat currencies, the mantra that “cash is king” is still relevant. Cash on the sidelines should never be underestimated. If you are fully invested, you are unable to take advantage of the dramatic mood swings of Mr. Market. Buffett enjoys a good deal as much as the next guy, but he has pledged to keep a cash reserve of at least $10 billion to both withstand unprecedented insurance losses, and take advantage of Mr. Market.

The Cyprus situation, macroeconomic issues, and market intervention by central banks are tugging Mr. Market left and right. With volatility near multi-year lows, the mood swings are likely to increase in the future. However, if you don’t like the prices coming from Mr. Market, there is always tomorrow.

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