원문 보기
I am a value investor. I try to determine the intrinsic value of a situation. I like to buy if the price is low relative to the intrinsic value, and I like to sell if the price is high relative to the intrinsic value. What is the main determinant of this relationship? It's the investor's emotion, psychology, and sentiment.
If people are excited and optimistic about an asset, there's a good chance its price will be higher than its intrinsic value, and of course, this is a source of danger and a source of lower-than-normal returns. But if investors are pessimistic and unenthusiastic, and they've abandoned the asset, there's a good chance its price will be low relative to its intrinsic value, and this is a source of great opportunity.
So we want to buy when people are depressed and pessimistic, and we want to sell when people are optimistic and enthusiastic. But the difficulty is that the emotions or psychology of many people— I use these terms interchangeably— it's not easy to say why most people's emotions fluctuate in the same way.
We are all subject to the same influences. We all read the same headlines. We all hear the same stories on television. We all see the same economic reports. So the things that excite others and make them positive and optimistic tend to excite us and make us positive and optimistic. Therefore, the things that force people to bid on stocks and drive up prices are the same forces that excite us and push us to buy when prices are high and sell when prices are low.
So the fact is, if your thoughts and emotions are the same as everyone else's, then you can't have the outside thinking—what I call second-level thinking— that is necessary to act against what we hear. The common word is that it's upsetting, and to sell at prices that are high because others are optimistic and buy at prices that are low because others are depressed.
We have to be aggressive when people are depressed and defensive when people are excited. In other words, we have to think and feel differently from others, and that's not easy. We have to be either Unemotional people need to learn the importance of emotional restraint and how to do it, and these things aren't easy, so most people are unable to do it.
You know, it's been proven that most people are optimistic at the peak, and that's proof that it's a peak. The proof is that prices are higher than ever. This can only happen if optimism prevails over pessimism. And it's been proven that people are depressed when prices hit the bottom, and low prices are proof that prices can only be that low relative to their intrinsic values if most people are depressed.
So we need to be enthusiastic when they're depressed and we need to be defensive when they're enthusiastic, and that's a difficult thing to do. And let me tell you, I know you're ready to talk, but let me tell you one more thing. One reason it's difficult to do is because there aren't many opportunities to do it.
I was talking to my son, those of you who have read the memos I've done I refer to my son Andrew in the memos from time to time, and we work together on investing. I mentioned that I was working on the book, and I told him, "You know, I really think my market calls were correct." He said, "Yes, Dad, that's because you've only made five market calls in 50 years." And it's true that if you wait for an extreme market, when it's really high or really low, and you only make your calls on those occasions, I believe that at those times the error in the cycle is obvious.
And if you come to that correct conclusion, there's a good chance it will work if you don't make mistakes. If you're impatient and try to make market calls anywhere other than at the extremes, I think the logic will be difficult, and I think it's unlikely you'll be able to do it often. So the things I recommend in the book wo n't work on a weekly, monthly, or annual basis; they'll only work at the extremes.
And if you know that most people do n't have that kind of patience, then he tries to make Make market calls more often, but when you're not close to an extreme, they won't work. Those of you who read the first book know there's a chapter that says the most important things are patience and opportunism.
I think the phrase means that when there's nothing smart to do, the mistake is trying to be smart. So, trying to make these calls other than at the market extremes is a mistake. You can't do it often, but if you do it at the market extremes, it's extremely profitable, and you don't have to do it often.
But if you do it at the true extremes, it's extremely profitable, and you don't need to do it often for it to bring a real boost to your performance. This video is finished. If you want to learn more about how to invest in Wardmarks, you can read the book "The Most Important Thing," available on Amazon, and you'll find the link in the description. Don't forget to subscribe so you don't miss the next videos. See you soon!
Comments 0