The Intellectual Investor: Why Value Investing Requires Thoughtful Arrogance
There are many ways to think about how to invest. One way is to look at what crowds are doing. When markets are going up or down, following the crowd up or down will lead to reasonable results.
But sometimes the crowd is wrong. Or a trend is about to shift. That’s why knowing how to approach an investment independently of the crowd can be a crucial skill. They key is to do it without ego.
That’s especially true for a value investment, which should beat the market over time, but may take time to play out.
Value investors try to take advantage of the fears or greed of others. They tend to lean towards fear, looking for a good long-term buying opportunity. But even investors going against the crowd may only succeed some of the time.
That’s why it’s important to keep emotion in check. Those who fail to do so may end up with the crowd. They could end up being fearful at a time to buy. Or they may get exuberant when it’s time to take profits.
That’s where “thoughtful arrogance” comes into play. Investors who buy a stock are assuming that they’re right and the price will rise. At the same time, they’re buying from someone who is selling based on their view that a stock is fairly or overvalued.
Keeping a cool head allows investors to focus on the fundamentals, not the market’s feelings.