As a disclaimer, I am not trying to ''educate'' anyone or act like I know it all. I am far from an expert, and I will never consider myself as such out of respect for the complexity of stock-picking, but after reading the major works of Howard Marks, Graham, Buffet, Munger, and having observed my own behavior and others around me during good and bad times, by major approach sums up to the following sentence:
“You're neither right nor wrong because people agree with you or disagree with you. In other words, being contrarian has no special virtue over being a trend follower. You’re right because your facts and reasoning are right.”
(Not sure if Buffet or Graham said it, but anyways)
It might seem like an obvious statement, but in my experience it's far from it…
I think there is a reason why Munger states knowledge in psychology and human nature is of immense importance when it comes to investment decisions, likewise, I also understand now why they are so critical of some business schools and their way of approaching the market; as if it was a robotic machine with predictable outcomes with no interference of human emotions.
I read news a lot and like to I listen to people, and I have noticed that when times are good, people will always rationalize over why a stock will continue increasing. Not too long ago, if we take Meta as an example, you wouldn't hear too many bad things being said about it. A safe blue chip stock, has monopolized all social media, and what not… But now that it has taken a major nose-dive (in stock price, very unproportional to corresponding loss of the company itself) you will hear everywhere, from analysts, people, news outlets that it's ''over'', the future looks ''hazy'', ''TkTok is rising'', ''Metaverse won't work out'' Whatever… I am not into that stuff, they might be right, and they might be wrong. I don't know. But the point is, if people truly had the conviction they had previous to the nose-dive, now would be the perfect time to invest a huge chunk in such a company. But most don't, this just proves it was all a bluff. They never truly believed in it, it was all emotions. Once again, psychology… Human emotions… Just like when times are good, they only saw the strengths of the company and no weaknesses, now that times are bad, they can only see the weakness of the company and no strengths, and they can only come up with reasons why it might go to shit.
Same thing with Tesla right now, I look around me and the majority can only see what's fantastic about the company. They have the best production rate, the best factories, the best batteries, the best engineers, branding power, whatever… I don't even know whether it's true, I'm not into this sector, this is just what I hear all the time around me. How would the opinions of majority of these people change if say Tesla nose-drived like Meta or Alibaba did right now? Say 50-60% because of just one missed quarter? I am willing to bet people will start saying ''the automobile industry is tough'', ''VW's catching up, their engineers are better…''.
Now those are just generalized examples to get my point across, but bottom line is, behavior like me is not surprising to me anymore, and there is a reason only a selected few will achieve desirable outcomes long-term, because as the quote in the beginning states, it's not about being a contrarian for the sake of being contrarian, or just following the flow. It's about making rational decisions and having this ''temperament'' that is often talked about, so that you're not dragged down by the panic and mania around you.
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