If you are predisposed to be patient, disciplined and psychologically appreciate the idea of buying bargains, then you're likely to be good at it. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that's great, but you're not a value investor, and you shouldn't be one.
Interpretation
Patience and discipline are key traits for successful value investing, while a desire for excitement may lead one away from that approach.
This quote by Seth Klarman emphasizes the importance of specific traits like patience and discipline for those interested in value investing. It suggests that investors who thrive on excitement and quick action in the face of new technologies may not possess the temperament required for successful value investing, which hinges on careful analysis and the willingness to wait for the right opportunities.
In practice
A financial advisor might use this quote to advise clients on the temperament required for investing.
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.
It sounds kind of crazy, but in times of turmoil in the market, I've felt a sort of serenity in knowing that I've checked and re-checked my work, one plus one still equals two regardless of where a stock trades right after I buy it.
Investing is the intersection of economics and psychology.
While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.
Value investing is risk aversion.
Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
Time is on your side when you own shares of superior companies.
It seems to me - particularly for these retirement-plan investors, the vast majority of whom are not particularly financially sophisticated - by far the best way is to invest in index funds.
When an investor focuses on short-term investments, he or she is observing the variability of the portfolio, not the returns - in short, being fooled by randomness.
Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.
Owning equities is an essential part of anyone's portfolio. You just can't ignore it over time. It's going to add the real pop to anyone's overall performance.
There's quite a bit of evidence that even professionals don't show any ability to pick stocks or to predict market rollbacks. Most of the people we identify as skilled based on returns have probably just been lucky.
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