How about this real example of beating time. John Walter joined AT&T, but after nine
short months he was out of a job. The complaint was that Walter “lacked intellectual
leadership.” Walter got $26 million for that little stint in a severance package. That's what
you call really beating time. Of course, a few of us might have another word for it — and
It's human nature to be optimistic. It's human nature to hope. Furthermore,
hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity
in life can lead to anger, disappointment, and depression. After all, if the world is a
negative place, what's the point of living in it? To be negative is to be anti-life.
Ironically, it doesn't work that way in the stock market. In the stock market hope is a
hindrence, not a help. Once you take a position in a stock, you obviously want that stock
to advance. But if the stock you bought is a real value, and you bought it right, you
should be content to sit with that stock in the knowledge that over time its value will out
without your help, without your hoping.
So in the case of this stock, you have value on your side — and all you need is patience.
In the end, your patience will pay off with a higher price for your stock. Hope shouldn't
play any part in this process. You don't need hope, because you bought the stock when it
was a great value, and you bought it at the right time.
Any time you find yourself hoping in this business, the odds are that you are on the
wrong path — or that you did something stupid that should be corrected.
Unfortunately, hope is a money-loser in investment business. It's counterintuitive
but true. Hope will keep you riding a stock that is headed down. Hope will keep you from
taking a small loss and, instead, allow that small loss to develop into a large loss.
In the stock market hope gets in the way of reality, hope gets in the way of common
sense. One of the first rules in investing is “don't take the big loss.” In order to do that,
you've got to be willing to take a small loss.
If the stock market turns bearish, and you're staying put with your whole position, and
you're HOPING that what you see is not really happening — then welcome to poverty
city. In this situation, all your hoping isn't going to save you or make you a penny. In
fact, in this situation hope is the devil that bids you to sit — while your portfolio of
stocks goes down the drain.
In the investing business my suggestion is that you avoid hope. Forget the siren, hope;
instead, embrace cold, clear reality.
ACTING: A few days ago a young subscriber asked me, “Russell, you've been dealing
with the markets since the late 1940s. This is a strange question, but what is the most
important lesson you've learned in all that time?”
I didn't have to think too long. I told him, “The most important lesson I've learned comes
from something Freud said. He said, ‘Thinking is rehearsing.’ What Freud meant was that
thinking is no substitute for acting. In this world, in investing, in any field, there is no
substitute for taking action.”
This brings up another story which illustrates the same theme. J.P. Morgan was “Master
of the Universe” back in the 1920s. One day a young man came up to Morgan and said,
“Mr. Morgan, I'm sorry to bother you, but I own some stocks that have been acting
poorly, and I'm very anxious about these stocks. In fact worrying about those stocks is
starting to ruin my health. Yet, I still like the stocks. It's a terrible dilemma. What do you
think I should do, sir?”
Without hesitating Morgan said, “Young man, sell to the sleeping point.”
The lesson is the same. There's no substitute for acting. In the business of investing or the
business of life, thinking is not going to do it for you. Thinking is just rehearsing. You
must learn to act.
That's the single most important lesson that I've learned in this business.
Again, and I've written about this episode before, a very wealthy and successful investor
once said to me, “Russell, do you know why stockbrokers never become rich in this
I confessed that I didn't know. He explained, “They don't get rich because they never
believe their own bullshit.”
Again, it's the same lesson. If you want to make money (or get rich) in a bull market,
thinking and talking isn't going to do it. You've got to buy stocks. Brokers never do that.
Do you know one broker who has?
A painful lesson: Back in 1991 when we had a perfect opportunity, we could have ended
Saddam Hussein's career, and we could have done it with ease. But those in command,
for political reasons, didn't want to face the adverse publicity of taking additional US
casualties. So we stopped short, and Saddam was home free. We were afraid to act. And
now we're dealing with that failure to act with another and messier war.
In my own life many of the mistakes I've made have come because I forgot or ignored the
“acting lesson.” Thinking is rehearsing, and I was rehearsing instead of acting. Bad
marriages, bad investments, lost opportunities, bad business decisions — all made worse
because we fail for any number of reasons to act.
The reasons to act are almost always better than the reasons you can think up not to act. If
you, my dear readers, can understand the meaning of what is expressed in this one
sentence, then believe me, you've learned a most valuable lesson. It's a lesson that has
saved my life many times. And I mean literally, it's a lesson that has saved my life.