The market just had the worst week in 2007. As someone who manages others’ money for a living, John Cheshire shares his experiences and thoughts.
Large market drops are an exciting thing for an institutional manager, the phone rings constantly with clients, staff and brokers. All the while distracting you from what you know you need to get done. Who is doing something silly out there? How much of my clients money can I get placed in it before they get wise to what I’m doing?
This mixed with the fear that the selloff might be longer tailed or more brutal than the last. Then the fear, or rather giddy greed, of not getting enough bought. Truly this is so much easier with your clients’ money. Recently I gave a bold but frightened friend wanting to increase his bank stock exposure in the wake of the subprime mortgage scare the advice I use with my own investing, don’t look at the balance when you have down days, and if you are scared when you are buying into a decline that just took months of savings off your balance, just close your eyes before you hit the enter key. It can feel that way even for someone who does this for a living.
But when we rationally stand back and look at market set backs we should be glad for the opportunities to purchase at discounted prices. As price declines, future returns increase, it really is that simple. As long as you are buying assets at appropriate valuations, you can’t get too brutalized by a market down turn. If we consider our time horizon, a market correction will be a squiggle on a chart somewhere when we look back at our investing career. Shelby Davis was correct when he surmised that bear markets were where we make all our money, it just doesn’t feel like it at the time.
The advantage of studying investing is in learning how to value a company with confidence, you are able to take advantage of mispricings presented by market down turns. If you can comfortably arrive at an appropriate estimate of a businesses intrinsic value, stepping to the plate in a market sell off can become an easier and more profitable task. Maintaining patience and humility though is wise, sometimes corrections are longer and more severe than we anticipate.
We are investing in real businesses with real products and future prospects, not just little pieces of paper with price quotes next to a few capital letters. It is easy to forget that while watching the talking heads on TV or getting caught up in the market sentiment. Much of Wall Street literature is entertainment, not pure business reporting.
By studying successful investors we are more able to understand how they value a company and replicate what has been successful. It is doubtful that Warren Buffett gets panicked and sells, my hunch would be that he would be more likely to be buying in the face of a market down draft. He has been very generous with his knowledge though. His thought process and methodology is all very clearly laid out for you to study in his annual reports, articles and interviews. Why not take advantage of the knowledge and the market?
Large market drops are an exciting thing for an institutional manager, the phone rings constantly with clients, staff and brokers. All the while distracting you from what you know you need to get done. Who is doing something silly out there? How much of my clients money can I get placed in it before they get wise to what I’m doing?
This mixed with the fear that the selloff might be longer tailed or more brutal than the last. Then the fear, or rather giddy greed, of not getting enough bought. Truly this is so much easier with your clients’ money. Recently I gave a bold but frightened friend wanting to increase his bank stock exposure in the wake of the subprime mortgage scare the advice I use with my own investing, don’t look at the balance when you have down days, and if you are scared when you are buying into a decline that just took months of savings off your balance, just close your eyes before you hit the enter key. It can feel that way even for someone who does this for a living.
But when we rationally stand back and look at market set backs we should be glad for the opportunities to purchase at discounted prices. As price declines, future returns increase, it really is that simple. As long as you are buying assets at appropriate valuations, you can’t get too brutalized by a market down turn. If we consider our time horizon, a market correction will be a squiggle on a chart somewhere when we look back at our investing career. Shelby Davis was correct when he surmised that bear markets were where we make all our money, it just doesn’t feel like it at the time.
The advantage of studying investing is in learning how to value a company with confidence, you are able to take advantage of mispricings presented by market down turns. If you can comfortably arrive at an appropriate estimate of a businesses intrinsic value, stepping to the plate in a market sell off can become an easier and more profitable task. Maintaining patience and humility though is wise, sometimes corrections are longer and more severe than we anticipate.
We are investing in real businesses with real products and future prospects, not just little pieces of paper with price quotes next to a few capital letters. It is easy to forget that while watching the talking heads on TV or getting caught up in the market sentiment. Much of Wall Street literature is entertainment, not pure business reporting.
By studying successful investors we are more able to understand how they value a company and replicate what has been successful. It is doubtful that Warren Buffett gets panicked and sells, my hunch would be that he would be more likely to be buying in the face of a market down draft. He has been very generous with his knowledge though. His thought process and methodology is all very clearly laid out for you to study in his annual reports, articles and interviews. Why not take advantage of the knowledge and the market?
