In this interview with Lex Fridman, Bill Ackman explains that knowledge and confidence in investing take time. Accept that volatility is natural and learn to develop a “calloused” approach to market fluctuations. He also recommends building an emergency fund and avoiding debt so market volatility doesn’t impact your well-being. This allows you to stay rational and make sound decisions. Here’s an excerpt from the interview:
Ackman: I think it’s something you learn over time. A key success factor is you want to have enough money in the bank that you’re going to survive regardless of what’s going on with volatility in markets, people who… one, you shouldn’t borrow money.
So if you borrow money, you own stocks on margin, markets are going down and you have your livelihood at risk. It’s very difficult to be rational.
So key is getting yourself to a place where you’re financially secure, you’re not going to lose your house. That’s kind of a key thing. And then also doing your homework.
Stocks can trade at any price in the short term. And if you know what a business is worth and you understand the management and you know it extremely well, it’s not nearly as…
It doesn’t bother you when a stock price goes down or it has much less impact on you because again, as Mr. Graham said, the short term, the markets are voting machine.
You have a bunch of lemmings voting one direction that’s concerning. But if it’s a great business, doesn’t have a lot of debt and people are going to just listen to more music next year than this year, you know you’re going to do well.
So it’s a bit some combination of being personally secure and also just knowing what you own and over time you build callouses, I would say.
You can watch the entire interview here:
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