Join The Motley Fool for a conversation with author, investor and philanthropist, Whitney Tilson. In addition to managing Kase Capital, Whitney has coauthored More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, Poor Charlie’s Almanack, and most recently The Art of Value Investing, a collection of interviews with over 200 successful value investors.
A full transcript follows the video.
Brendan Byrnes: You said that the three most dangerous words in investing are, “I missed it.”
Whitney Tilson: Right.
Brendan: I’ve definitely been guilty of this. Amazon.com, Inc. (NASDAQ:AMZN) in the past, LinkedIn Corp (NYSE:LNKD) more recently, when you look at that and you say, “Man, it’s too expensive now. It’s had this run up, why would I buy it now?” How should individual investors look at this? Should they reevaluate how they’re looking at the company, and ignore that?
Whitney: This gets to the broader issue of controlling your emotions in investing. The reality is, there have been numerous studies over the years that show that, in so many different ways, human beings are hard-wired to be irrational when it comes to making financial decisions.
They buy at the very top, they sell at the very bottom. They won’t buy a stock if they’ve been doing research on it and the stock runs up 10 or 20%. They say, “I missed it.”
This scenario, where Warren Buffett has said, “Once you reach a certain level of IQ, and you have a certain amount of experience and training and so forth, what differentiates great investors from good investors from poor investors is the ability to control the emotional side of investing.”
A very wise friend of mine once said — he doesn’t wish to be named, but he’s the one who gave me this concept of “I missed it” — he said, “Whitney, any time you look at a stock and it’s run up, the value guy in you and I both say, ‘you don’t want to chase the stock.’