Establish a Sound Investment Philosophy 59Risk versus Volatility
As I wrote this book, the U.S. economy was experiencing one of the
toughest pullbacks since the Great Depression. The substandard lend-
ing practices that were fueled by one of the greatest housing booms
in history have virtually frozen the global credit markets. Once-storied
fi nancial powerhouses such as Bear Sterns and Lehman Brothers no
longer exist as a result of excessive fi nancial leverage and the inability
to dispose of toxic assets in a timely fashion. The biggest bank col-
lapse in the history of the United States took place when Washington
Mutual had to dissolve in September 2008.increase the probability that you buy at a low price and are thus able
to sell later at a higher price.
Investors must learn to be at peace with their investment deci-
sions. You can do this only if you have truly focused on paying
cheap prices for your investments. If you have, any subsequent
decline in the stock price will not cause you to make ill - timed sell
decisions. Instead, most likely either you will sit still, knowing that
the movement in stock price has nothing to do with the value of the
business, or you will look to buy more of an even better bargain.
It should come as no surprise that a value - oriented investment
approach looks to profi t and capitalize during weak markets. Periods
of market turmoil and uncertainty increase the likelihood of fi nding
bargain investment opportunities. When the general mood is against
equities, the likelihood of fi nding irrational valuations is greatest.
Declining markets tend to create very fertile hunting ground for
patient value investors. The biggest investment opportunities can
arise during the direst market environments. Subsequently, investors
often produce some of their best results from exploiting bear market
opportunities, but they don ’ t know it until the bear market passes.CH004.indd 59CH004.indd 59 9/2/09 7:06:51 PM9/2/09 7:06:51 PM