In his recent interview on the Richer, Wiser, Happier Podcast, Howard Marks explains why the great investors he knows are unemotional about investing. Here’s an excerpt from the interview:
Marks: Emotion is the greatest enemy of superior investing.
If you take a look at most people in what they call the herd or the consensus, as the economy does well, as the company’s profits grow, as it reports higher earnings, as the stock rises, most people become more and more and more excited about it.
More optimistic, more trusting and they are more inclined to buy. So the higher the price the more buying they do. Then eventually things stop going so well, the economy turns down, the corporation’s profits contract, the earnings announcements are negative, the price of the stock declines, people get pessimistic and depressed and more likely to sell.
So the higher the price the more likely they are to buy, the lower the price the more likely they are to sell.
This is the opposite of what we should be doing. We should be scaling out as the price rises, perhaps when it gets unreasonable, and we should be getting in with both feet when it falls.
So clearly most human emotion is arrayed against doing the right thing. And you know there are a lot of other examples not just that but you know there’s a reason why Buffett said, “The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs.”
When other people are unafraid we should be terrified because that means they’ll pay prices that are too high, when other people are terrified we should turn aggressive because their terror makes things available to us cheaply, and you’re right I mean the great investors I know are unemotional about their investing and they go counter to these trends.
You can watch the entire interview here:
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