Have the Discipline to Say No 145Discipline Is Simple but Rarely Easy
A disciplined approach may be simple enough to follow, but it is not
an easy thing to do. It ’ s simple because you don ’ t need to have a high
IQ or super - analytical skills to be a disciplined investor, but it ’ s not
easy because you are battling against your emotions and Mr. Market.
When it comes to bull markets, no one wants to be off the boat
when it ’ s riding a rising tide. Emotions have a way of being one -
sided when the mood is jubilant. People often forget about the
long - term goals of investing when everyone seems to be profi ting
in the short term. Writing in 1776, Adam Smith defi ned what he
called “ the trade of speculation. ” According to Smith:The speculative merchant exercises no one regular, established,
or well - known brand of business. He is a corn merchant this
year, and a wine merchant the next, and a sugar, tobacco, or
tea merchant the year after. He enters into every trade when
he foresees that it is likely to be more than commonly profita-
ble, and he quits it when he foresees that its profits are likely to
return to the level of other trades. His profits and losses, there-
fore, can bear no regular proportion to those of any one estab-
lished and well - known branch of business. A bold adventurer
may sometimes acquire a considerable fortune by two or three
successful speculations; but is just as likely to lose one by two or
three unsuccessful ones.^3
Smith concludes that sudden fortunes and sudden losses were the
equally likely results. His defi nition of speculation agrees very closely
with that of an “ investor ” who exercises no discipline in security selec-
tion. Investing should always be about capital preservation fi rst and
capital appreciation second. Having the discipline to say no is a key
part of successfully adhering to that approach. Value investors are not
bold adventurers; that is, not with respect to investment approach.CH007.indd 145CH007.indd 145 9/2/09 11:47:28 AM9/2/09 11:47:28 AM