180 THE WARREN BUFFETT WAY
Buffett believes that too many of today’s investors feel a need to pur-
chase too many stocks, most of which are certain to be mediocre, instead
of waiting for the few exceptional companies. To reinforce Graham’s les-
son, Buffett often uses the analogy of a punch card. “An investor,” he
says, “should act as though he had a lifetime decision card with just
twenty punches on it. With every investment decision his card is
punched, and he has one fewer available for the rest of his life.”^4 If in-
vestors were restrained in this way, Buffett f igures that they would be
forced to wait patiently until a great investment opportunity surfaced.
- True investors are rational.They approach the market, and the
world, from a base of clear thinking. They are neither unduly pessimistic
nor irrationally optimistic; they are, instead, logical and rational.
Buffett f inds it odd that so many people habitually dislike markets
that are in their best interests and favor those markets that continually
put them at a disadvantage. They feel optimistic when market prices are
rising, pessimistic when prices are going down. If they go the next step
and put those feelings into action, what do they do? Sell at lower prices
and buy at higher prices—not the most prof itable strategy.
Undue optimism rears its head when investors blithely assume that
somehow the fates will smile on them and their stock choice will be the
one in a hundred that really takes off. It is especially prevalent in bull
markets, when high expectations are commonplace. Optimists see no
need to do the fundamental research and analysis that would illuminate
the real long-term winners (e.g., f inding the few keepers among all the
look-alike dot-coms) because the short-term numbers are so seductive.
Undue pessimism, whether directed at one company or the market
in general, motivates investors to sell at exactly the wrong time. In
Buffett’s view, true investors are pleased when the rest of the world turns
pessimistic, because they see it for what it really is: a perfect time to buy
We don’t have to be smarter than the rest; we have to be more
disciplined than the rest.^3
WARRENBUFFETT, 2002