EMOTIONAL CONTROL

Warren Buffett, and all great investors understand that the time to invest in your favourite companies is when the markets have crashed. These opportunities don’t come along very often. This is the definition of “being greedy when others are fearful” as Buffett is often quoted saying. The other way to express this opportunity is to “buy low”.

All great investors understand the value of emotional control.

Investors with no knowledge of (or concern for) profits, dividends, valuation or the conduct of business simply cannot possess the resolve needed to do the right thing at the right time.

HOWARD MARKS

Howard Marks is telling us that if you understand the attributes of a quality business like its ability to generate cash and continue to pay dividends, a sharp decline in share prices should be seen as a great opportunity to buy more. It is common behaviour for market speculators to be selling at the exact time they should be buying. This is because they lack the understanding and emotional resolve to buy when prices decline.

During a discussion between Howard Marks and Joel Greenblatt, the two investment legends had the following to say:

“Most people, including most people in the investment business, don’t have the ability to take advantage of market opportunities. We get excited when prices are high and we get depressed when prices are low” said Marks, before Greenblatt interjected, “I think you and I would agree that people are nuts.”