The Business of Value Investing: Six Essential Elements to Buying Companies Like Warren Buffett

Chapter 9. Invest Significantly at the Maximum Point of Pessimism: THE SIXTH ELEMENT

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

—Warren Buffett, Berkshire Hathaway 2004 Annual Report

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

—Sir John Templeton, 1994

To succeed in investing over the long run, you must be prepared to look stupid in the short run.

—Mason Hawkins

We now come to arguably one of the most defining characteristics of a successful investment philosophy. As to be expected, buying during periods of pessimism is also one of the most difficult things to do because it requires the investor to go against the crowd psychology. It requires the investor to do the opposite of what the majority is doing. It requires the investor to go at it alone. Doing these things goes against most other conventional aspects of society and human nature. Our minds and our lives are geared toward accepting the overall consensus. Our president is elected by a majority vote; victory in sports is determined by the collaboration of the team; and important decisions are made after consultation and agreements of the members involved. In these instances and ...