Psychology of Great Value Investors

1. Be disciplined

  • Successful investors are very disciplined and they do not let emotions (eg. fear and greed) get in the way. They buy and sell on strict rules. Using a checklist on when to buy and when to sell will help to curb out the emotions and make us detached from our stock holdings.

2. Never follow the crowd. Have an independent mind.

  • Warren Buffett’s famous quote, “Be fearful when others are greedy and be greedy when others are fearful” rings true. When the whole world is shouting “Buy!” and stock market is going up on a frenzy, you should be fearful and even look to sell some of your overvalued stocks. A market crash or recession, when the majority are fearful, is a good time to consider buying assets at selling at unbelievable discounts.
3. Never rely on experts. Be an expert yourself.
  • Never rely on experts or gurus as they are humans themselves, they do make mistakes and they can be wrong at times too. Have an independent thinking and research into companies yourself instead of relying on analysts or brokers. You won’t know what hidden agenda the guru or analyst might have in releasing a buy call on a certain stock. You can always read an analyst report, digest their materials and conduct your own intimate research into the stock you are interested in.
4. Invest only when there’s minimal risk.
  • Before investing, always think “What’s my downside?” or “How much am I willing to lose?”. Remember Warren Buffett’s rules “Rule No.1: Never lose money; Rule No.2: Don’t forget Rule No.1”. Always think in terms of preserving capital before thinking about making money.
5. When there’s nothing to invest in, don’t invest!
  • When the world stock market is in a bubble and market P/Es are hitting the roof like during the dot-com bubble, sit tight in cash and just enjoy the world go past.
6. Take responsibility of your own mistakes and never blame others.
  • When you make a wrong investment, think through what went wrong and do a post-mortem. This will help you to make an informed choice in the future and ensure that you will not repeat the same mistakes again. When you blame others for your mistakes, you will be bound to make the same mistakes again and you won’t be a better investor. There are no failures, only feedbacks.
7. Don’t time the market. Take action with what is presented before you.
  • Timing the market is futile. Take action as and when the market presents itself before you. There are many researches conducted on timing the market and all point to the same conclusion: Time in the market is more important than timing the market. It doesn’t matter if you are right or wrong. What matters is how much you make when you are right and how much little you lose when you are wrong.
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2 thoughts on “Psychology of Great Value Investors

  1. Coming from a lazy person like me, Long term investing is good because it involves less work. However, up to an extend that you have to monitor all the reports every quarter it is still work to me.

    So the next question to ask ourselves is, how much money is enough?

    Enough to cover our basic needs like food, shelter, medical care, clothing till we decease (lets say an average of 80)

    Or enough to own a car, go for a 2 week holiday overseas every year, have maids and such?

    Obviously everyone have different standards.

    But what I understand is this, your lifestyle is your standard.

    So if you do not want to work hard and don’t want to risk what you already have you better have enough to cover just your basic needs not discounting inflation.

    Why do we have to pay for rain that fell from the sky?
    Why do we have to pay for wood that grew in the wild?

    Because groups of people called the goverment are arrogant enough to say that the planet belongs to them and if you common people want to use it, you have to pay for it by taxes which makes them rich!

    And to think they have to audacity to ask us to vote for them to power so they can lord over us and make you work for things that provided free from Mother Nature!!!

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