Ignore Emotions And Take Advantage Of Bloodbath In Global Markets by SG Value Investor, The Value Edge
Excitement would be the best word to describe the last few days. Each morning, I wake up to see a sea of red on my Bloomberg app.
No, I am not losing my mind if that’s what some of you are wondering.
Fears of a worldwide economic slowdown based on disappointing manufacturing surveys from China, Germany, UK and US have been driving market sentiment down. Adding to these troubles are geopolitical worries – consequences from the protests in Hong Kong, the air strikes on ISIS and the news of a diagnosed Ebola case in the US. When everyone was thinking that Greece was on the mend, we see bond yields crossing an important line, nearing 9% when it was just approximately 6.6% a week ago. Essentially, investors are just dumping shares and other risky assets, clamoring into safe havens like gold and government bonds.
Here’s what Charlie Munger had to say at the Daily Journal meeting
Charlie Munger spoke at the Daily Journal Corporation's Annual Meeting of Shareholders today. Although Warren Buffett is the more well-known Berkshire Hathaway chief, Munger has been at his side through much of his investing career. Q4 2020 hedge fund letters, conferences and more Charlie Munger's speech at the Daily Journal meeting was live-streamed on Yahoo Read More
Global Markets: Emotions
Allow me to start with a story. Back in 2012, it was a period of uncertainty within the Eurozone, with countries requesting for bailouts. Touring Japan with my family, I remembered asking my father. ‘Looking at past history, markets go up and down. Knowing this, why do people still start panicking, selling down their stocks and not just waiting it out?’ With regards to his reply, it went something along the lines of, ‘People just do. Also there are people trading on margin.’
Truthfully, I never really understood his response. Fast-forward 2 years, I still dare not say I really understand his response. Why? Well it just defies logic. While the market price may be falling but this does not mean the company’s fundamentals have changed or going to be liquidated. All I can assume that the thoughts going through the minds of these people would be, ‘What if it continues falling?’, ‘Perhaps I should sell now and buy back when it gets cheaper’ and ‘Every professional analyst is screaming sell and to seek safer assets, they definitely can’t be wrong’.
- Money is a scary thing. It can really affect our emotions during such times of uncertainty. Imagine watching your holdings drop 20%… 40%… maybe even 50%. That is 50% of your hard earned money just disappearing in a matter of weeks or days. To be successful at value investing, temperament is a truly a key aspect.
- Contrarian. Being a value investor, essentially you have chosen a lonely path. You are a contrarian, someone who goes against the norms and having practically everyone disagreeing with you. However, it is about sticking to your convictions. People at the top 1% of the society did not get there by thinking like the rest of the 99% of the population. They would probably have chosen the path least taken, overcoming all odds and ultimately emerging at the top.
What we should be doing:
Value investing is a highly emotional sport.
Be fearful when others are greedy and greedy when others are fearful
As value investors, this is the moment we are waiting for. Well true, it isn’t the moment, but it still is a good opportunity. Whilst I can’t tell when markets will start recovering, all I can say is they eventually do. To achieve that outperformance, you have got to first underperform. Essentially, it is all about controlling your emotions and basing your decisions on logical and rational thinking.