In his 1997 Baupost Group Letter, Seth Klarman says you aren’t human if you aren’t scared you’ve made a gigantic mistake when purchasing a stock. Here’s an excerpt from the letter:
In investing, nothing is certain. The best investments we have ever made, that in retrospect seem like
free money, seemed not at all that way when we made them.
When the markets are dropping hard (as they are right now in Asia) and an investment you believe is attractive, even compelling, keeps falling in price, you aren’t human if you aren’t scared that you have made a gigantic mistake.
The challenge is to perform the fundamental analysis, understand the downside as well as the upside, remain rational when others become emotional, and don’t take advice from Mr. Market, who again and again is a wonderful creator of opportunities but whose advice should never, ever be followed.
The markets have remained volatile into November and December, presenting both challenges and
opportunities. We remain focused on risk aversion, seeking to hold only compelling bargains.
Positions that have risen toward full value have been sold and catalysts have also recently turned a number of the Fund’s holdings into cash.
You can read the letter amongst a collection of Baupost Letters here:
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