The Investing Monk

The best foundation for a successful investment—or a successful investment career—is value. You must have a good idea of what the thing you’re considering buying is worth. There are many components to this and many ways to look at it. To oversimplify, there’s cash on the books and the value of the tangible assets; the ability of the company or asset to generate cash; and the potential for these things to increase.

To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them—ideally, all three

The relationship between price and value is influenced by psychology and technicals, forces that can dominate fundamentals in the short run. Extreme swings in price due to those two factors provide opportunities for big profits or big mistakes. To have it be the former rather than the latter, you must stick with the concept of value and cope with psychology and technicals.

Economies and markets cycle up and down. Whichever direction they’re going at the moment, most people come to believe that they’ll go that way forever. This thinking is a source of great danger since it poisons the markets, sends valuations to extremes, and ignites bubbles and panics that most investors find hard to resist.

Likewise, the psychology of the investing herd moves in a regular, pendulum-like pattern—from optimism to pessimism; from credulousness to skepticism; from fear of missing opportunity to fear of losing money; and thus from eagerness to buy to urgency to sell. The swing of the pendulum causes the herd to buy at high prices and sell at low prices. Thus, being part of the herd is a formula for disaster, whereas contrarianism at the extremes will help to avert losses and lead eventually to success.

The power of psychological influences must never be underestimated. Greed, fear, suspension of disbelief, conformism, envy, ego and capitulation are all part of human nature, and their ability to compel action is profound, especially when they’re at extremes and shared by the herd. They’ll influence others, and the thoughtful investor will feel them as well. None of us should expect to be immune and insulated from them. Although we will feel them, we must not succumb; rather, we must recognize them for what they are and stand against them. Reason must overcome emotion.

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One day a Young Boy asked his father “what is the value of his life?”

Instead of answering, the father told his son to take this rock and go sell it at a market.

If anybody asks the price, raise two fingers and don’t say anything.

The boy went to the market, and woman asked,” How much is this rock? I want to put it in my garden.”

The boy didn’t say anything and raised up two fingers and woman said, “2 dollars? I’ll take it.”

And boy went home and told his father, a woman wants to buy this rock for 2 dollars.

The father then said, “Son, I want you to take this rock to a museum, if anybody wants to buy it don’t say a words and just put up two fingers.”

The Boy then went to the museum and man wanted to buy the rock, the boy didn’t say a word and put up 2 fingers and man said, “ $200?  I’ll take it.”

The boy was shocked and went running home and told his father, “Father a man wants to buy this rock for $200.”

His father then said, “Son, the last place I want you to take this rock is to a precious stone store, show it to the owner and don’t say a word and if he asks the price just put up two fingers.”

The son went to precious stone store, he showed the rock to owner, “Where did you find this stone? It is one of the rarest stones in the word, I must have it! How much would you sell it for?”. The boy put up two fingers. And man said I’ll take it for $200,000.

The boy not knowing what to say, ran home to his father, “Father, There’s a man that wants to buy stone for $200,000!”

His father then said, “Son, Do you know the value of your life now? You see it doesn’t matter where you come from, where you were born. The color of your skin or how much money you were born into. It matters where you decide to place yourself, the people you surround yourself with and how you choose to carry yourself. You may have lived your whole life thinking that you were a $2 stone. You may have lived your whole life surrounded by people that saw your worth for only $2. But everybody has a diamonds inside of them. And we can choose to surround our self with people that see our value and see the diamonds inside of us.  We can choose to put our self in a market or put our self in a precious stone store. And you can also choose to see the value in other people. You can help other people see the diamond inside of them. Choose the people you surround yourself with wisely. That can make all the difference in your life