When investing, pessimism is your friend, euphoria the enemy.
Individual investors beware: If you're constantly worried about a crash, you're probably making some big mistakes - and losing a lot of money in the process.
It's human nature: for most investors, the pain of stocks going down is more tangible than the joy of when they go up. The common impulse is to do something - anything - to minimise the pain.
Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling.
Be fearful when the markets get greedy, be greedy when the markets get fearful.
The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
I have warned many times about the guaranteed dangers of betting with your heart instead of your head - big darkness, soon come - but every once in a while you get a fair chance to have it both ways, and the annual NCAA basketball Tournament is one of them.
Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.
A lot of people got in at the wrong time. A lot of people did very well and some people said, "This is it. I'll never get back in again." And they maybe meant it, but they probably got back in again anyway.
What motivates most gold purchasers is their belief that the ranks of the fearful will grow ... As 'bandwagon' investors join any party, they create their own truth - for a while.
Rip Van Winkle would be the ideal stock market investor: Rip could invest in the market before his nap and when he woke up 20 years later, he'd be happy. He would have been asleep through all the ups and downs in between. But few investors resemble Mr. Van Winkle. The more often an investor counts his money - or looks at the value of his mutual funds in the newspaper - the lower his risk tolerance.
Mr. Market is kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he get really enthused you sell to him, and if he gets depressed, you buy from him. There's no moral taint attached to that.
With actively managed funds, people have big behavior problems. With funds that have done well, they put their money in, and when it has done bad, they want to take it out.
In the financial markets, hindsight is forever 20/20, but foresight is legally blind. And thus, for most investors, market timing is a practical and emotional impossibility.
The chief problem with the individual investor: He or she typically buys when the market is high and thinks it's going to go up, and sells when the market is low and thinks it's going to go down.
Outperforming the majority of investors requires doing what they are not doing. Buying when others have despaired, and selling when they are full of hope, takes fortitude.
When reviewing one's portfolio, it is important to be aware of common mental mistakes that may lead to bad decisions. The most powerful is commitment bias, which, as manifested in investing, is the tendency to fall in love with one's stocks.
What is the most common investor mistake? Trading - getting in and getting out at all the wrong times, for all the wrong reasons.
Remember that the stock market is manic-depressive.
When it comes to investing, you are your own worst enemy.
There are no safeguards that can protect the emotional investor from himself.
Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.
The greatest enemies of the equity investor are expenses and emotions.
The markets are moved by animal spirits, and not by reason.
