One thing that I think distinguishes value investors somewhat is that they pay a lot of attention to what could go wrong, what's the downside. And that's well captured in this quote from Ragen Steinke of Westwood Management. "The very first thing we do when we start to analyze a company is to ask ourselves how far the stock price would fall if we were wrong.
It's not some back of the envelope calculation, but a full assessment looking at liquidation asset values and stressing the business model and valuation levels under any number of bad scenarios." "If the downside is more than 30% from today's price, it's unlikely we'll invest, regardless of the upside potential. If we can't establish a concrete downside number, which probably means it isn't far from 100%, we absolutely won't buy the stock." "Going through this first sets the tone we want to set in our research. Rather than start looking to convince ourselves why we should buy something, we start out trying to prove why we shouldn't buy it. We try to keep that level of skepticism alive throughout the process." I think that's a hallmark of value investors, that kind of-- any investor has to have some optimism. You wouldn't invest if you weren't optimistic about a company's prospects https://www.casinoslots.co.nz/bonus-bets. But skepticism is kind of a hallmark I think of a good investor, and really thinking about what could go wrong. It's great if a stock could double, but if that stock could go to zero, you should think about that. So Whitney will speak in more detail about how smart investors go about determining what a stock is worth. But even if you're able to do that well, there are a lot of things that can trip you up as an investor. And a lot of that revolves around anything doing with money can set off all kinds of irrational responses on people's parts. It could be you're assuming that what just happened is what's going to happen forever. Or you're panicking because your stock went down and it feels really bad to have money evaporate like that. You could be that you're only looking for evidence that confirms what you already believe and you're really ignoring evidence that disconfirms what you already believe. So these are the types of things that can throw people off, and this is the reason why it is so hard to beat the market. People make a lot of behavioral and emotional mistakes. And I think one of the things that sets really good investors apart is they're able to deal with that pretty well, however they do it. Whether it's just innate wiring or it's they've learned it over time, you have to control your basest instincts somewhere. I have a couple quotes here from two very longtime, very successful investors, one of whom is Seth Klarman of the Baupost Group. "As Graham, Dodd and Buffett have all said, you should always remember that you don't have to swing at every pitch. You can wait for opportunities that fit your criteria, and if you don't find them, patiently wait. Deciding not to panic is still a decision." And that's just-- I mean everyone's probably felt it. Like if you were an investor and you lived through 2008, 2009, it feels really bad. Reading the paper was really hard, and it feels bad. And there was a really strong tendency in those cases to just want to get out. Make the pain go away. And that's perfectly natural. It's evolutionary in a lot of ways, but it's not the greatest thing to do as an investor. The person who panicked and sold in March of 2009 and then was so scared that they haven't gone in for the last five years, they've left a lot of money on the table and that's a big mistake. This is another quote from a guy who is a very longtime investor. He's in his 70s and he still really does well, and he just very matter of factly said, "I honestly don't feel any of the emotional ups and downs from the market's day to day activity.
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