Value Library

The following is an excerpt from the ABC Perspective - January 2005 - Pg. 12

I have always thought that the key to successful investing entailed discipline, focus, contrary opinion, persistence, the courage of one’s convictions and profound patience. While all this may be true, serious security analysis and profitable investing is often confronted by one of man’s greatest failings ---- greed.

It is amazing how intelligent and normally rational people involved in important and responsible employment can become so smitten by excessive stock market euphoria. At these times they lose all sense of rationality, perspective and discipline as unbridled greed leads to featherbrained investment decisions. Unfortunately, once undertaken, these poor investment decisions cannot be taken back since there is no money-back return policy in the investment world.

It is our view that successful investing is a 24-7 analytical process. Furthermore, once fundamentally analyzed, an investment decision must be fully-thought-out as to the appropriateness of the security to a particular portfolio and a future exit strategy. Difficult bottom-line decisions must be made devoid of giddy and greedy emotions. In the heat of the battle this is often easier said than done as powerful human greed overtakes all rationality and common sense.

The best commentary on this human failing, I believe, was an April 2004 Investor’s Business Daily article written by Craig Shaw entitled, “Don’t let intelligence breed dumb investing mistakes”. In this piece Shaw writes:

“Sir Isaac Newton lost money in the South Sea bubble of the 18th century. Mark Twain squandered his fortune speculating on inventions and real estate. Plenty of Ph.D.’s and M.D.’s saw their nest eggs shattered in the 2000-02 bear market. The lesson? A high IQ often means little when it comes to investing.

After his experience, Newton said, “I can calculate the motions of heavenly bodies but not the madness of people.” Albert Einstein once said, “Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.”

In summation, it is not enough to thoroughly analyze a potential investment. More importantly, as investors, we must seriously bullet-proof ourselves from ourselves. Difficult as it may be, we must adhere to our strict and time-proven investment decision-making processes and refrain from poor, momentary, lemming-like, greed-driven judgments.