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what I recommend is a few large steps, not many small ones. A single giant step at the low would be nice, but without holding a signed contract with the devil, several big moves would be safer. It is particularly important to have a clear definition of what it will take for you to be fully invested.
Observation over many years has taught us that the chief losses to investors come from the purchase of l ow-quality securities at times of favorable business conditions. The purchasers view the current good earnings as equivalent to “earning power” and assume that prosperity is synonymous with safety.
“Never ask a barber if you need a haircut.”
“Why should I own this investment?”
a big part of success in investing is knowing how to say no.”
As long as you were wrong but sounded extremely confident, even a poor track record was excused. Such is the power of confidence.
Expert advice attenuated activity in areas of the brain that correlate with valuation and probability weighting.
“Don’t question authority. They don ’t know the answer either!” This rather sums up my general disregard for authority.
Providing some distance from the actual implementation seemed to markedly increase compliance to authority.
So not only are men bad traders, they are a bad influence as well.
The good news is that we don’t need to outsmart everyone else. We need to stick to our investment discipline, ignore the actions of others, and stop listening to the so-called experts.
“Those who have knowledge don’t predict. Those who predict don’t have knowledge.”
However, as Charlie Munger has pointed out, “Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you but it doesn’t. They teach that in business schools because, well, they ’ve got to do something.”
As Ben Graham said, “Forecasting security prices is not properly a part of security analysis,
In fact, between 2000 and 2008, the analysts hadn’t even managed to get the direction of change in prices right in four out of nine years.
Across all predictions, the experts were little better than coin tossers.
“Analysis should be penetrating not prophetic.”
All investors should devote themselves to understanding the nature of the business and its intrinsic worth, rather than wasting their time trying to guess the unknowable future.
once you reject forecasting for the waste of time that it is, you will free up your time to concentrate on the things that really matter.
Investors faced with chronic uncertainty will turn to any vaguely plausible explanation and cling to it.
To put it another way, more than half of the largest moves in markets are totally unrelated to anything that might be classed as fundamentals.
In other words, people underreact to things that should make them change their minds. That certainly seems to sum up the average analyst.
Hanging onto a view simply because it is your view is likely to end in tears. As Keynes said “When the facts change I change my mind, what do you do sir?”
As you can see, the evidence on effectiveness of the treatments was completely ignored in favor of the power of the story.
Despite the fact that long-term IPO underperformance is a very well documented fact, investors keep stepping up to the plate and purchasing IPOs.
suspect this is because the stories overwhelm the evidence,
Ben Graham insisted that “safety must be based on study and standards, ” and that valuations be “justified by the facts, e.g., the
What prevents us from seeing these predictable surprises?
over-optimism.
illusion of control
self-serving bias—the
myopia—an
inattentional blindness.
So to combat the pervasive problem of self-attribution we really need to keep a written record of the decisions we take and the reasons behind those decisions—an investment diary, if you will.
When dealing with losses, the urge to reach for an action bias is exceptionally high.
Winnie-the-Pooh pointed out, “Never underestimate the value of doing nothing.”
For some reason, in some bizarre mental world, people believe that a loss isn’t a loss until they realize it. This belief tends to lead to investors holding onto their losing stocks and selling their winning stocks—known as the disposition effect.
“The time to reflect on your investing methods is when you are most successful, not when you are making the most mistakes, ” or indeed Ben Graham’s exultation, “The value approach is inherently sound . . . devote yourself to that principle. Stick to it, and don ’t be led astray.”
