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As Robert Hagstrom described in ‘The ADVERTISEMENT

Warren Buffett Way’, there are few aspects Views Search

of human existence that are more emotion- Find a view Go
laden than our relationship with money. So
while much of this world revolves around Portfolio Tracker
money and most of us are owned by
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money…we are never satisfied with what
we have. In fact, money, like the law, is a
cruel taskmaster – demanding all our effort,
consuming our thoughts and stealing our
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And the two emotions that drive our money- www.InvestmentU.com/Oil_Report
related decisions most profoundly are ‘fear’ We Value Your Privacy

and ‘greed’. Motivated by fear or greed, or

both, we frequently buy or sell stocks at foolish prices, far above or below a company’s intrinsic
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company’s fundamentals. And you must agree to the fact that much of what drives our decision
about stock purchases can be explained by our own behaviour.

And since the market is, by definition, the collective decisions made by stock purchasers like us,Chat
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Don't invest if you can't do this - Views on News from Equitymaster Page 2 of 4

Data Source: Trend

Yes you read that right – markets are but an extension of our collective psychologies.

So if you hope to participate profitably in the market, you must allow for the impact of
emotion.

And how can you do that?

1. By keeping your own emotions under control as much as possible, and…

2. By being alert for those times when other investors’ emotion-driven decisions present you
with a golden opportunity.

See, we might make it sound very easy when we say that you just need to control your emotions
while making stock investment decisions. But is that really so easy when you put it to actions? Not
at all, we must say!

We humans are generally not hard-wired to practice discipline in our dealings with money. If we
were, the market would have been a dry place with no real opportunities to make tremendous
wealth.

Whatever the experts on business channels say, you need to realise that the market is a highly
inefficient place to be in. Stocks that you buy and sell are the same that are sold and bought by
someone else. In this case, either you have the correct information about the stock and are
subsequently buying or selling it, or the other guy is better placed than you to be selling or buying
the same stock.

In simple words, what we mean to say is that when the market provides us with the right kind of
opportunities, rather than acting on our own discretion, judgement, and knowledge, we often tend
to do what others are doing.

We tend to follow the herd…and so do our stock market returns…and even in the long run, we end

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Don't invest if you can't do this - Views on News from Equitymaster Page 3 of 4

up earning just as much everyone else has earned.

So where is the advantage?

How do you find and act upon those wealth creation opportunities that others will realise later and
by then you would have made your buck…safely?

The answer, we must tell you again, lies in you having full control of your emotions and investing in
the right kind of stocks with utmost discipline.

At Equitymaster, we try and do exactly this while looking for long term opportunities for our
subscribers.

We keep emotions out of the picture while researching companies and valuing their stocks.

And the way we do it by following the sound philosophies of investing legends like Warren Buffett
and Benjamin Graham as closely as possible. We though try to suit these learnings to the Indian
market conditions, where company disclosures are not so good, and the markets are not so deep
and broad for us to find ‘world-class’ companies.

As such, we believe in recommending ‘good’ companies when their stocks are available at
attractive valuations as compared to their intrinsic values. Thus, when intrinsic values of
fundamentally sound companies do not change but their stock prices come off by 10%-12%, there
is only one thing you as an investor should do – take advantage of the irrationality that is
prevalent.

After all, as Warren Buffett would confirm, great investment opportunities come around when
excellent companies are surrounded by unusual circumstances that cause stocks to be
misappraised.

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Don't invest if you can't do this - Views on News from Equitymaster Page 4 of 4

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