Greed has a unique character. It creates great outcomes and then destroys whatever it creates. So, we tend to see its creative potential when we apply it at the right time. We also cant escape viewing its destructive side when we get greedy at the wrong time. Yet, most investing happens exactly around the time when we run the risk of destruction. Investors tend to dump all their money just around that time when they should think of staggering their decisions and showing patience. Greed and patience have the capacity to work perfectly in tandem. But, when greed and impatience combine, the result would be destructive to your investing. Investors must realize that greed needs to be matched by patience. When it is the wrong time, your patience needs to curb your greed. Uncontrolled greed will always end up destroying everything. The markets are at the crossroads where one needs to evaluate the serious need to curb greed. If one needs to achieve that, he needs to show enormous patience. Peers will be doing crazy things. The activity all around would be very high. To be calm and watching the madness is never easy. But, any experienced investor will tell you that there is no other way to beat the markets and make your investment strategy a winning one. So, it is that time when patience must be controlling greed. And, the mind must sit still thinking calmly about the future. The world looks up to Warren Buffett for his enormous wealth creation. It is that time when one should learn the art of waiting from him. There simply cant be a better way of paying a tribute to the great investor.
Greed, in the end, fails even the greedy. – Cathryn Louis
In every crisis, there is an opportunity. But, how does an investor make use of it? Participating in an opportunity is the only way to benefit from a crisis. One needs to invest when there is panic all around him. But, it isn’t as simple as it seems. Most investors seldom react to an opportunity. Despite knowing very well that they could benefit from their actions, investors mostly fail to act. The reason for this is simple. Knowing what one must do is simply not enough. You must prepare yourself enough to actually do it. To walk the talk, you need to be in a ready state of mind, money and math. You need to know to smell an opportunity. You must have enough money ready to be invested at short notice. You should know how much money to invest. If all three aspects- mind, money and math are in a state of readiness, investing is more likely to happen. Otherwise, every crisis will come and go while you remain a mute spectator. Selling needs as much preparation as buying. When to sell is the most important investor concern which has no ready answers. A lot has been written and read about this subject. Behavior is the core problem as you need to act against what others are doing. If your math is right and you are ready to think objectively, then you have prepared yourself enough to decide sensibly on a sell. When your mind and math are in place, selling becomes much simpler. Yet, one needs to sell when there is buying frenzy all around him. An investor’s persistent challenge is to constantly prepare to play contrarian to Mr. Market.
Investing is the intersection of economics and psychology. – Seth Klarman
The concert season is a time when the herd mentality will be on full display. Everybody would want to attend the same concerts. Tickets for a few concerts would be at a premium. Scarcity would prevail. The names that draw the crowds will be very familiar, popular and widely discussed. A cult following for a select few will be the order of the day. At the same time, there will be budding artists and emerging performers who will be singing to empty halls. Their concerts wont even be priced. They will be singing for free. Yet, there will be little interest in them among the elite. The elite wont be caught dead in a free concert. To them, it has to be marquee names. Only, those names that everybody knows and are sounding politically right when mentioned in gatherings. The story is no different in equity investing as we see it now. Marquee investors have their own marquee stocks. These are greatly in demand, widely discussed and much loved. Buyers flock to the same basket of investment of ideas and their flocking is leading to frothy valuations. Nobody wants to sell a stock as the scarcity is just too good to be ignored. Reinvestment in similar popular stocks is a challenge. On the other hand, we find neglected stocks in other sectors which are struggling to find takers. There is little light in sight for them. They need a structural recovery in the economy, recovery in capital goods and much more. But, the valuations of the neglected stocks are a stark contrast to the favored ones. They aren’t even remotely factoring in any good news they could land up with in the future. They are selling at abysmal valuations with little or no interest. Investors aren’t interested in their problems or the prospect of them getting solved. The crowds are too busy to even notice them. But, one thing is clear. Tomorrow’s stars will always be among today’s neglected pack. And, the challenge before an investment manager is to find ways of playing them for their clients.
The successful investor is usually an individual who is inherently interested in business problems.
An investor’s mind is influenced by what gets in. Essentially, if he watches business TV all the time, his thinking will meander along with its flow. Given the shifty and short term orientation of Business news, he will also be driven by the immediate. Thinking beyond the immediate will be a constant challenge. So, how can an investor be objective and mindful? Let us understand how investors, who actually manage to be mindful, do it. Firstly, they cut out the noise. Secondly, they decide how to receive information. You will often find that iconic investors keep emphasizing the importance of reading. Essentially, reading helps an investor greatly cut out the noise. Next, an investor must learn the art of constantly putting his ear to the ground. To be mindful, this is the most important thing. Putting ear to ground helps gain lateral insights and literally be grounded in thought. An ear to the ground, feet firmly on it and being mindful helps an investor steer away from the madding crowd and tread the road less traveled to creating wealth. What influences an investor matters greatly in noisy times like the present.
“There is only one way to describe most investors: trend followers.”- Howard Marks