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The Equitymaster Research Digest

The Investing Opportunity We Have Let Pass All These Years! Regretfully So...
Jan 10, 2017

  • The Tree is Important and Not the Forest
  • Our Best Recommendations So Far
  • Living in Post-Truth World

Fear. Manic depression. Crisis.

For value investors like us, reacting to such market sentiments comes naturally. We know exactly when, why and how to react. We have been trained to be greedy when others are fearful. And have practiced doing so for years.

It is greed that we turn our backs to. It has become a habit. Simply because our entire focus during times of excessive greed is on safety. So we book profits and avoid buying stocks.

But neither greed nor fear is permanent in the market. Think about it. Our opportunities to buy the best stocks at the best prices are limited to phases of market fear. At all other times we have to sit tight waiting for the next opportunity to come by. Which means there are months when it is impossible to act on any investing opportunity.

Incidentally, we came across a mental model suggested by Charlie Munger that likens investing to surfing. Munger's idea was that some strong winds helped innovator companies ride the tide faster and grow bigger than competitors.

The same logic applies to stocks too. Fundamentally sound stocks that are moving higher tend to benefit from the market's 'greed' to latch on to them. Note that it is greed and not fear that is at work here. And therefore the mental model of surfing presents a contrarian idea that we have not explored earlier.

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