By Frank Mullen
A friend of mine is a pilot and he once laughed at a common description of his job: “hours and hours of boredom punctuated by moments of sheer terror.” A pilot’s success can be determined by their reaction to those brief moments, regardless of how long they have successfully flown without prior mishaps. In Morgan Housel’s great book, The Psychology of Money, he likens an investor’s success to that of a pilot. An investor’s reaction during periods of so-called terror will likely drive their long-term performance and ability to compound their capital.
Does the terror of declining asset values cause you to sell and wait for clearer skies, or does it prompt you to revaluate your thesis and take advantage of the now-discounted prices? Both are understandable responses, but far too often the average investor sells and locks in a loss before truly evaluating the investment’s future prospects. I have witnessed this countless times over the years. The natural human reaction to fear overwhelms one’s ability to reason, and it can lead to undesirable consequences.
Read the rest of Frank’s commentary here >> Earning Our Wings