The Cardinal Rule of Investing For These Times
“In the end, how your investments behave is much less important than how you behave” -Value investor Benjamin Graham (Warren Buffett’s teacher)
There is no doubt these times can be called “unprecedented”. Yet while the situation is unknown and scary, human reaction remains consistent over history: fight or flight. When it comes to investing, the decision is basically the same. Do you hold onto what you own or do you sell? Before making that decision, I think it is helpful to remember our “Cardinal Rule of Investing”: For every seller there is a buyer and for every buyer there is a seller and they both think they’re right. The Rule reminds us that the entire stock market is underpinned by the fact that there are two sides (and two investors) to every trade. While simple, the Cardinal Rule’s implications need further explanation which I will do in this newsletter. When anxious about the stock market, understanding the Cardinal Rule may help investors remain patient, perhaps even allowing them to capitalize on the less patient.
