I’ve pulled this one from The Most Important Thing, by Howard Marks.
Investing scared, requiring good value and a substantial margin for error, and being conscious of what you don’t know and can’t control are hallmarks of the best investors I know.
This is particularly important to remember when investment valuations get lofty. Nobody is making you invest at high valuations with low prospective future returns. You can wait. Be like Buffett and load up on cash until the right opportunity presents itself.
But, it’s hard to do because we’re wired as Humans. Evolution has shaped us to be susceptible to extreme FOMO and myopia. We see others making returns and want to get a piece of those returns at exactly the wrong time (after prices have already run up!) We get short sighted and focus on returns over a yearly, monthly, or even weekly timeframe, when we should be pulling up and looking at prospective returns over the coming decade. These sort of errors in judgement make us complacent at the exact time we should be fearful. We cast away our doubts at exactly the time we should be heeding them most. But it doesn’t have to be that way. Control your emotions, know what type of market you’re investing in, and above all, invest scared!