In the history of every great catastrophe, you will find that some masterly bit of stupidity sets fire to the oil-soaked rags.
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Wall Street in boom days is an aggregation of madmen. The Stock Exchange becomes Bedlam well dressed.
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In the beginning of a stock market boom it is ever the “dear public,” the fleecy lambs, the most guileless victims, who make the most money. They really do not know when to stop winning, and so in the end they lose profit and principal.
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Greed is a bandage which a higher power sometimes binds across the eyes of reason.
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A lot of smart people think they’re way smarter than they are, and therefore they do worse than dumb people. And it’s very common to be utterly brilliant and think you’re way the hell smarter than you are.
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When investors — individual and institutional alike — engage in far more trading –inevitably with one another — than is necessary for market efficiency and ample liquidity, they become, collectively, their own worst enemies.
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For social and sentimental reasons, people have a propensity to want to do really dumb things from time to time.
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I think you have to be an undying optimist, and perhaps a Pollyanna to enjoy and to be successful at managing common stock portfolios over a long period of time.
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One thing all of us know for sure is that the stock market doesn’t go down just because a lot of folks think that it has entered the heart of looney land.
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To beat the market is not easy. In addition to a good investment manager, the investor needs perspective, patience, and courage — qualities that do not abound in today’s intensely competitive world.
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Nothing so gives the illusion of intelligence as personal association with large sums of money.
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It’s natural for people to think their own civilization and their own nation is better than everybody else, but everybody can’t be better than everybody else.
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People, it turns out, are not that averse to risk. For many reasons, they are not opposed to risk, but they are opposed to losing and the possibility of loss plays a very significant part in their decision.
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When deciding to sell, people have control over whether to give themselves pleasure or give themselves pain, and they tend to give themselves pleasure. In other words, they tend to sell winners and hang on to losers. It turns out to be a bad idea.
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It turns out that when people have to sell a stock from their portfolio, they are not rational between winners and losers. People tend to sell winners and hang on to their losers. The psychology of that is quite straightforward.
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One of the major differences between behavioral economics and standard economics is that, in standard economics, the individual agent is supposed to be driven or motivated by the utility of future wealth and discounted future wealth and present wealth. In behavioral economics, agents are supposed to be motivated by something else: gains and losses.
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Individual investors tend to churn their accounts, they tend to trade too much, and that they trade too much seems to be due to over-confidence. They believe they know something that they do not know and this is one essential characteristic of human beings, which makes them different from rational beings.
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Hoaxes, frauds, manias, and other large-scale financial irrationalities have been with us from the beginnings of the markets in the seventeenth century, long before the Internet.
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Almost everybody on this planet has the brain power to make money in the stock market. The question is whether you have the stomach for it and whether you’re willing to do a little bit of work? Those are the key elements.
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Most people on Wall Street don’t have principles to begin with. And if they have them, they don’t stick to them.
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We are sort of the polar opposites of a lot of investors. We do a lot of thinking and not a lot of acting. A lot of investors do a lot of acting, and not a lot of thinking.
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Good investing requires a weird combination of patience and aggression. And not many people have it.
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The single most important thing, if you want to avoid a lot of stupid errors, is knowing where you’re competent and where you aren’t. Knowing the edge of your own competency. And that’s very hard to do because the human mind naturally tries to make you think you’re way smarter than you are.
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The only sound distinction in investment policies for one type of investor or another is based not on his financial position but on his financial competence and financial preparation.
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Please do not forget that as the common stock level advances, the advantages of common stocks appear to be more attractive and the basic need for owning them becomes more persuasive in everybody’s reasoning. Yet in fact, common stocks undoubtedly become riskier as the price advances, and thus the risk increases as the widespread acceptance of common stock develops.
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It may be a fair generalization to assert that the top levels of most “normal” bull markets are characterized by a tendency to equate stock risks with bond risks.
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Neither regulation nor memory is a perfect protection against the will to delude one’s self or others. If people are sufficiently persuaded of their own wizardry or that of others, they and their money will be separated.
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Many things are possible in Wall Street. But neither there nor anywhere else has a man ever prospered by trying to hog it.
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In Wall Street, what has happened before will happen again. It must, as you will admit if you stop to think about it.
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Laws have been passed to outlaw some of the more egregious behavior which contributed to the big bull market of the twenties. Nothing has been done about the seminal lunacy which possesses people who see a chance of becoming rich.
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I do strongly urge that we be as cautious as ever in reposing too great confidence in men of great financial position.
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When people think there’s easy money available, they’re not inclined to change.
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There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.
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I have observed many cases of habit patterns in all activities of life, particularly business, continuing (and becoming accentuated as years pass) long after they ceased making sense.
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We live in an investment world, populated not by those who must be logically persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe.
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I have always found it easier to evaluate weights dictated by fundamentals than votes dictated by psychology.
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The road to successful investing is paved with independence of spirit, decisiveness, and the courage of one’s convictions.
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I’m an optimist, both as a person and an investor. It’s a big mistake to be pessimistic as long as we have a viable civilization which is reasonably well managed.
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It makes no sense for individual investors to jump in and out of the market. People who trade in that way rarely die rich, whereas the patient investor often does.
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I have a very simple strategy. I buy good companies at attractive prices. Then I sit on them.
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The big profits I have made were through very long planning, waiting and watching.
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You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.
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The fact that people will be full of greed, fear, or folly is predictable. The sequence is not predictable.
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The business schools reward complex behavior more than simple behavior, but simple behavior is more effective.
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You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls, it’s a business where you think.
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The tour we’ve taken through the last century proves that market irrationality of an extreme kind periodically erupts — and compellingly suggests that investors wanting to do well had better learn how to deal with the next outbreak.
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If you quantify, you won’t necessarily rise to brilliance, but neither will you sink to craziness.
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Don’t think for a moment that small investors are the only ones guilty of too much attention to the rear-view mirror.
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People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them.
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There seems to be some perverse human characteristic that likes to make easy things difficult.
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When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.
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When proper temperament joins with proper intellectual framework, then you get rational behavior.
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When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years.
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Any time you offer a big prize for a small amount of money, you encourage stupid behavior on behalf of those you’re appealing to.
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We try to get fearful when others are greedy. We try to get greedy when others are fearful. We try to avoid any kind of imitation of other people’s behavior.
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The best kind of business to be in is something where you sell something that costs a penny and sells for a dollar and is habit forming.
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The disadvantage of being in any kind of a market type environment – Wall Street would be the extreme – is that you get over-stimulated. You think you have to do something every day.
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Our expectations of the future are not unbiased and do not reflect all available information.
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Your wealth is in many ways dependent on what other people will pay for your assets.
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Job insecurity has been a problem for as long as people have depended on a paycheck.
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In speaking of future prospects it is often difficult to make the distinction clear between what one considers the most desirable in the public interest and what one reckons to be the most probable in the actual circumstances. For unfortunately the course of events which is the most desirable is not always the most probable!
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Buy only what you understand, believe in, and intend to stick with — even when others are chasing the next miracle.
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I don’t want to spend my time trying to earn a lot of little profits. I want very, very big profits that I’m ready to wait for.
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It is just appalling the nerve strain people put themselves under trying to buy something today and sell it tomorrow. It’s a small-win proposition. If you are a truly long-range investor, of which I am practically a vanishing breed, the profits are so tremendously greater.
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I know plenty of guys who consider themselves to be long-term investors but who are still perfectly happy to trade in and out and back into their favorite stocks.
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You want to design a portfolio that will make the members of a household as happy as possible, but the problem is that people aren’t very good at anticipating how they’re going to react to various market outcomes.
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When the markets are fairly ebullient, investors tend to hold the least objectionable securities rather than the truly significant bargains.
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Human nature being what it is, small loopholes are likely to be exploited until they become big ones, and big ones until they turn into financial disasters.
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If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance. But people being optimistic and greedy by nature take the recent short-term outperformance of stocks as a sign of good things to come, rather than a warning of bad things to come.
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People always want to believe that this time is different, that there’s something new under the sun, and that through their own ingenuity they can wish away risk.
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People who chase growth, who chase highfliers, inevitably lose because they paid a premium price. They lose to the people who have more patience and more discipline.
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It turns out that value investing is something that is in your blood. There are people who just don’t have the patience and discipline to do it, and there are people who do. So it leads me to think it’s genetic.
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One of the nice things about investing is there are many different disciplines that work. You should find one that you’re comfortable with.
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Managers do not create large alphas by being conventional. They do so by taking the risk of being wrong and alone.
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Market inefficiencies, like tax selling and window dressing, also create mindless selling, as can the deletion of a stock from an index. These causes of mispricing are deep-rooted in human behavior and market structure, unlikely to be extinguished anytime soon.
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The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.
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The tendency of investors to follow the market’s momentum and bet on whatever has worked recently is accompanied by antipathy to whatever hasn’t.
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Being extremely early is tantamount to being wrong, so contrarians are well advised to develop an understanding of the psychology of the sellers.
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We consider for each of our investments not only whether a security is undervalued but why it is undervalued. If the reason is that there are uninformed or emotional sellers, we become more comfortable.
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It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it. Yet distancing yourself from the crowd is an essential component of long-term investment success.
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It is not really within human nature to comprehend that you may not know everything you think you know, and, further, that what you believe in could change on a dime.
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People do not consciously choose to invest according to their emotions — they simply cannot help it.
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There is no salve for the hungry investor like the immediate positive reinforcement that comes from making money instantaneously.
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There is always a tension in the financial markets between greed and fear.
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Everybody can talk about the problems, but very few investors act on them.
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When the next fear-inspired panic occurs, investors’ finger-pointing will almost certainly be aimed outward, while a good part of the blame should instead be directed inward.
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People seeking answers to why the market plunged usually emphasize the immediate events that precipitated a selling panic, when in fact these events are but minor symptoms of much more severe underlying problems.
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I like the idea of having a little action. That may not be good from a logical point of view, but it’s good from an emotional point of view.
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If you don’t like to lose money and it affects your judgment, don’t buy things that can go down a great deal.
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One of the things you learn in this business is humility because you see your mistakes the next day.
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If you looked at September 1986 to October ’87, the market was unchanged. It had a thousand points up and a thousand points down and they only remember the down.
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