Investors repeatedly jump ship on a good strategy just because it hasn't worked so well lately, and, almost invariably, abandon it at precisely the wrong time.
Interpretation
This quote emphasizes the importance of patience in investing, warning against abandoning a promising strategy due to temporary setbacks.
David Dreman highlights a common mistake among investors who often give up on good strategies when they face short-term challenges. This impulsive behavior frequently results in exiting positions at inopportune times, suggesting that successful investing requires sustained commitment and the ability to resist emotional responses to market fluctuations.
In practice
During a finance seminar, this quote can illustrate the pitfalls of emotional decision-making in investments.
Value investing is simple to understand but difficult to implement. Value investors are not supersophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing.
When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom.
Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
Read Ben Graham and Phil Fisher read annual reports, but don't do equations with Greek letters in them.
Value investing is risk aversion.
As time goes on, I get more and more convinced that the right method of investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.
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