Have the Discipline to Say No 137the “ smart ” money is always talking about the crowd pleasers, without
regard to any fundamentals. As 2008 came to an end, the markets
were down over 40 percent, one of the worst annual performances
on record. With scores of equities priced at valuations that will likely
reward investors in future years, stocks are now perceived to be
riskier than ever. Some things never change. Disciplined investors
should rejoice during these times of emotional misbehavior.Don ’ t Split Hairs
As with all characteristics of investing, maintaining a disciplined
approach is part art and part science. It is of paramount importance
to separate a disciplined investment approach from a rigid invest-
ment approach. The greatest common fallacy that many investors
fall prey to is attempting to invest at the absolute bottom. Investors
feel highly intelligent when they believe they have timed the bottom
of the price of a stock. Just as failing to maintain discipline can lead
to avoidable losses, attempting to invest at the absolute bottom can
eliminate potentially powerful investment gains. It ’ s futile to invest
in this way. It ’ s great if you do catch the bottom, but remember if
you do that it ’ s more luck than investment skill. Nevertheless, as
foolish as it is, many investors always look to catch bottoms. As long
as Wall Street looks at the market through glasses oriented to the
short term, people always will attempt to time the markets perfectly.
Consider the next two investment situations, which illustrate
the general uselessness of bottom fi shing in the overall investment
landscape.
Investor A buys shares in ABC Corp., confi dent that the company
is undervalued. She invests in the business and, shortly afterward,
the stock drops by as much as 50 percent. For well over a year, the stock
price remains dormant. All the while, the investor sees share prices
rising at other businesses she ’ s familiar with. Investor A reassessesCH007.indd 137CH007.indd 137 9/2/09 11:47:26 AM9/2/09 11:47:26 AM