In this video clip from “Man on Fire,” Pita is a competitive swimmer. Creasy is a highly trained operative, currently serving as Pita’s bodyguard. At a previous swim meet, Creasy observed that Pita was “the slowest off the block, but one of the fastest in the water.” He further observed the reason Pita was the slowest off the block was that she flinched at the sound of the gunshot.
This is a problem that Creasy can train out.
Creasy must reprogram Pita’s instincts and reflexes. Rather that fear the sound of the gunshot, Creasy will train Pita to concentrate and welcome it. “The gunshot holds no fear.” “The Gunshot Holds NO FEAR!” “You are a prisoner of this block until that sound sets you free.”
In like manner, Benjamin Graham attempts to reprogram the novice investor in Chapter 8 of his book, The Intelligent Investor, “The Investor and Market Fluctuations,” that the market holds no fear, “The Market Holds NO FEAR!” Rather than fear market fluctuations, which is the natural, instinctual response, the intelligent investor can be reprogrammed and trained to expect and welcome market fluctuations as an opportunity to buy wisely when prices fall sharply, and to sell wisely when they advance a great deal.
As a boxer, I had to be trained to keep my eyes open when punches were coming at my face. Only then could I maintain composure, respond correctly, defend myself, and counterpunch effectively.
An investor can likewise be trained to maintain composure in the midst of market fluctuations, defend gains by selling into market exuberance, and pick up bargains by buying into times of fear.
When Pita overcame her fear of the gunshot sound, she was able to swim her best time, and triumphantly declare, “I’m tough, Creasy.”
Creasy gently corrected her, “Yeah? There is no such thing as tough. There’s trained and untrained. Now which are you?”
“Trained,” Pita understands.
Unscrupulous advisors will prey on your fear, build up your fear, and use your fear against you to sell you products you don’t need. Shame on them.
Let’s train out your fear so you can master the markets.
The market holds no fear.
The market holds NO FEAR!
Check out this video where Warren Buffett addresses the headline-grabbing issues of the day: Brexit, Negative Interest Rates, and Climate Change. Spoiler alert, here are some of his quotes from the video:
"It won't make any difference to anything Berkshire does."
On Negative Interest Rates:
"It is a huge stimulus to borrowing."
On Climate Change:
"It is not a risk to our insurance business."
Warren Buffett effortlessly reconciles his two rules of investing (Rule #1: Don't lose money. Rule #2: Don't forget Rule #1) with his perennial optimism in American Industry. For Buffett, any concern over Brexit or Climate Change is a non-starter. "I mean, if I was assured by Cameron that they were going to stay in or leave, it wouldn't change one iota what I'm doing in businesses or in stocks." About Climate Change he says, "It's not an insurance risk."
On the contrary, negative interest rates are having a huge impact on his business decisions. He sees the current low rate environment as an opportunity to invest more aggressively than he otherwise would if rates were closer to their long-term norms. As an example, he cites a purchase he recently made, "I know that I paid more for Precision Cast Parts because interest rates are so low than I would have paid if interest rates were 6 or 8 %."
It is refreshing to hear a level-headed response to the fear-mongering from the media. If you have any questions on anything you may have heard on the news, and how it may impact your investments, please feel free to reach out to us. We will be happy to discuss it with you.
Just a quick note to share an article I just read which provides some perspective on the Brexit situation.
How do you make money in the stock market?
"Buy low and sell high." Everybody knows the answer to this question. It is the knee-jerk response, and it is correct. Sounds easy, right? It is simple, but not easy.
To apply the principle of buying low usually means buying when others are selling, buying when there is bad news, buying when the headlines are telling you to be afraid, buying when the recent track record is not favorable, being the only one in the buying line when the selling line is out the door. Buying low is unpopular and lonely.
Likewise, selling high is not as easy as it sounds. In practice, selling high entails getting rid of your winners, letting go of your best performers, firing your star player - right after he just got a perfect five stars on his most recent performance evaluation, leaving the party when its getting really good. How can you be so cold-hearted as to leave the one that brought you to the dance? Then, you take the proceeds from the sale (betrayal) of your darling, and you dump it into what on the surface appears to be a total dud.
Now imagine doing that with other people's money - while they are watching you. Imagine trying to explain why you got rid of the best-performing stock in the portfolio (aka: selling high), and why you turned around and bought the laggard that has been making headlines for all the wrong reasons (aka: buying low). It is not surprising few managers are able to beat the markets. To do so requires patience, discipline, and the ability to harness your emotions and to think for yourself. It requires the ability to think rationally and to set guidelines, and then to follow the guidelines diligently. Please feel free to call or email us to learn more about how we apply the simple maxim - Buy Low, Sell High.
In my habit of regularly re-reading Benjamin Graham's classic - The Intelligent Investor - I came across a great quote I feel compelled to share with you:
"The habit of relating what is paid to what is being offered is an invaluable trait in investment. In an article in a women's magazine many years ago, we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume. The really dreadful losses of the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask, 'How much?'"
Graham, Benjamin, The Intelligent Investor - Revised Edition, 1973. p.8.
Graham gives us a great analogy that we can learn much from: buy stocks like you buy groceries, not like you buy your perfume. Shop for value, compare, consider the ingredients, think about what you are going to need for the meal you are about to prepare, and never go to the grocery store on an empty stomach.
There is a lot of analysis that goes into the selection of the securities in our portfolio. Our goal is to buy the finest quality companies at reasonable prices, not the trendy scent in the fancy packaging.
If you would like a deeper glimpse into our investment process, our portfolio construction, and our historical returns, please feel free to contact us. We would be happy to sit down with you.