- We can see that many of the property sectors have become heated.
- And others are feeling the chill, as investors are becoming increasingly nervous.
- “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” Benjamin Graham.
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Value investor Joel Greenblatt comes across as quite the colorful character when he wants to. Which seems to be often enough. Then again, with his extremely impressive resume, perhaps he’s earned the right to it.
Greenblatt founded private investment partnership Gotham Capital, where he’s still a managing partner. He’s a professor at Columbia Business School, former chairman of Alliant Techsystems – a Fortune 500 company – co-founder of the Value Investors Club, and an author to boot.
So no matter his amusing levels of bluntness (or perhaps because of it), Greenblatt seems like a smart guy. That’s why I’m willing to quote him when he says something like:
“Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”
See what I mean about being a character? Not to mention being worth paying attention to. I mean, let’s face it… we can all do some seriously stupid things in our investment habits.
It actually takes a lot of work and practice not to do seriously stupid things: The price of being human, I suppose.
Then again, considering the very real cost of not paying that price, I’d say it’s worth discussing. For that matter, so did legendary investor Benjamin Graham.
Mr. Market at His Finest
For those of you who don’t know, Benjamin Graham is considered to be the father of value investing. Considering his significant successes in the 20th Century during some of the most extreme market conditions - it’s a title he well deserves.
In 1949, Graham wrote a book called The Intelligent Investor. If you’re one of my regular readers, you know that title because I’ve referenced it a time or two before. It’s a great read with very valuable information that’s inspired a whole lot of profits.
Take the concept of Mr. Market, which Graham used to represent the average investor – who does everything wrong. Driven by fear and greed in their most extreme forms, Mr. Market is extremely reactive. Instead of being proactive or analytical, he jumps in and out of stocks based on emotion alone.
If everyone’s buying, he’s all in! And if everyone’s selling, then guess what he’s doing too?
Now, each one of us likes to think ourselves so far above that model. We’re not rude like the masses, foolish like them, followers like them, bad drivers like them… the list can easily go on from there. In which case, we’re definitely not Mr. Market.
At least not in our minds.
But before we solidify that shining image in our own eyes, let’s ask ourselves a few potentially painful questions:
- How well did our portfolios perform in the aftermath of Black Monday in 1987?
- How well did our portfolios perform in the aftermath of the dot.com crash in 2000?
- How well did our portfolios perform in the aftermath of the housing market bubble bursting in 2008?
- By those questions, I mean how well prepared were we to deal with those jarring events – both from a financial and psychological sense? Our answers are telling.
Mr. Market, the Cool Kids, and Us
Too many of us were too busy trying to run with the cool kids. We took their advice on what we should buy, spurned the stocks they said were worthless, and overall set ourselves up for failure.
Sorry if that’s too blunt. I guess I’m taking a page from Greenblatt’s book on this one.
It’s with good reason though when we can be too fond of our self-directed opinions. Sometimes we need to be snapped out of that state of mind for our own good.
I bring this up because a reader recently left me this comment on my “4 Sleep-Well-at-Night REITs for Granny” article:
“Loved reading this article and will definitely check the link to Grandpa’s story just hoping to see whose investments performed better over time… my guess is Grandma. Maybe you can do a Mr. Roger’s Neighborhood themed article to help those beginning their investment journey. I would subscribe just to help my grandchildren build portfolios so that they have a chance to succeed…”
That sounded like a great idea! It still does. And I had every intention of going the Mr. Rogers’ route too when I first set out writing this response.
For anyone born too late to appreciate Fred McFeely Rogers, he was known – and beloved – for his preschool television series, Mister Rogers’ Neighborhood. There, he calmly and engagingly emphasized such things as self worth and treating others with the same kind of respect.
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