As an investor keeping emotions under control is probably one of the most important skills required to be successful over the long term. Famous investors such as Warren Buffett (Trades, Portfolio) and Seth Klarman (Trades, Portfolio) have mastered this skill, which is why they can buy when others are fearful and make billions from volatile markets.
If it weren’t for the tens of thousands of highly emotional investors who cause market volatility, which throws up the opportunities for these value investors to take advantage of, their returns wouldn’t be as outstanding as they are.
Following the crowd is not the key to success and ignoring your emotions while focusing on cold-hearted value is the only way to ensure you achieve the best returns for your money over time. Rather than try and describe how important it is to keep your emotions under control when investing, I’ve gathered together some quotes from famous value investors who make the point better than I ever could.
Keep emotion out of it
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Ben Graham
“Almost all the great investors I know are unemotional. Unemotionalism is one of the most important criteria for being a successful investor.” –Â Howard Marks (Trades, Portfolio)
“Again let me say, the human side of every person is the greatest enemy of the average investor or speculator.” –Â Jessie Livermore
“Unsuccessful investors are dominated by emotion.” – Seth Klarman
“It is a human frailty which we all possess in some degree that becomes the investor’s and speculator’s greatest enemy and will eventually, if not safeguarded, bring about his downfall. It is a human trait to be hopeful and equally so to be fearful, but when you inject hope and fear into the business of speculation, you are faced with a very formidable hazard because you are apt to get the two confused and in reverse positions.” –Â Jessie Livermore
“Emotion lies dangerously close to the surface for most investors and can be particularly intense when market prices move dramatically in either direction.” – Seth Klarman
"Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks." –Â Walter Schloss
“To master investing you need to master your emotions. You cannot get emotional in making investment decisions.” –Â Peter Lynch
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman
“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.” – Seth Klarman
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You can’t be a good value investor without being an independent thinker – you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that.” –Â Joel Greenblatt
The most important quality for an investor is temperament, not intellect.” – Warren Buffett
"I cry when I watch the Olympics. I am part of the one percent of the people in the movie theatre crying. So I'm an emotional person. But about investing, I'm not emotional. Emotion is a very bad thing to mix with investing." –Â Bill Ackman (Trades, Portfolio)
“Why do experienced investors continue to make behavioural errors? Seth Klarman once said that 'people don’t consciously choose to invest with emotion – they simply can’t help it.' I agree. That’s what makes investing so difficult for most people.”– Ed Wachenheim
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