Hi Everybody,Here's a summary in continuation of Chapter 8."Every investor who owns common stocks must expect to see them fluctuate in value over the years. In general, the shares of second line companies fluctuate more widely than the major ones, but this does not necessarily mean that a group of well established but smaller companies will make a poorer showing over a fairly long period. In any case, the investor may as well resign himself in advance to the probability, rather than the mere possibility, that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent one-third or more from their high point at various periods in the next five years.A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer. But what about the longer term and wider changes? A substantial rise in the market is at once a legitimate reason for satisfaction and a cause for prudent concern, but it may also bring a strong temptation toward imprudent action.It is for these reasons of human nature, even more than by calculation of financial gain or loss, that we favor some kind of mechanical method for varying the proportion of bonds to stocks in the investor's portfolio. The chief advantage perhaps is that such a formula will give the investor something to do. As the market advances, the investor will from time to time make sales out of his stock holdings, putting the proceeds into bonds; as it declines he will reverse the procedure. These activities will provide some outlet for his otherwise too-pent-up energies. If he is the right kind of investor he will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd."-----------------------------------------------------------------------I think that this portion of chapter 8 brings up a very interesting situation that faces the investor. Namely, the psychological effects of market value fluctuation (separate from changes in the intrinsic business value).As the chapter mentions, most stock holdings will fluctuate in market value significantly over a number of years. This creates both opportunity and risk. It offers an opportunity if one takes advantage of a market misappraisal to sell at a significant gain from intrinsic value or purchase at a significant discount to intrinsic value. But it also offers risk if one is so influenced by the market price to sell out at a low point and at a significant discount to fair value or if one gets caught up in bullish enthusiasm and purchases at speculative prices.I think that this is another example of the major role that discipline and focus and courage plays in beneficial stock investing. While the methodologies of prudent investing are not that difficult, the psychological pressure to maintain one's tested valuations against the vagaries of Mr. Market is often enormous.Peter Lynch makes a comparable insight,"Keeping the faith and stockpicking are normally not discussed in the same paragraph, but success in the latter depends on the former. You can be the worlds greatest expert on balance sheets or p/e ratios, but without faith, you'll tend to believe the negative headlines. You can put your assets in a good mutual fund, but without faith you'll sell when you fear the worst, which undoubtedly will be when the prices are the lowest."ZB
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