- A business can be under or overvalued for many years. The longer the time horizon, the more likely the share price will converge towards intrinsic value.
- Judging your investing ability on how share prices move in the short term is a bit like appraising a poker player on one round of cards. It’s at best futile, and at worst dangerous. There’s too much randomness and luck.
- Investing successfully often requires embracing pain. It was painful buying stocks back in March last year, and even more so during the 2008/09 financial crisis; but those who managed it reaped great rewards. Investing is hard because it goes against every human instinct. Normally pain is a warning signal, but in investing it’s often a buying signal.
- The most painful asset to own right now is probably cash, since it’s losing money in real terms, while virtually every other asset keeps rising. At times like these it’s easy to forget that cash:
- Acts as a security blanket and immediate source of liquidity – this is crucial, especially in difficult times, when other assets are falling in value
- Provides ammunition to exploit future opportunities
Investors are most likely to give up on cash, in favour of riskier assets, at times of optimism.