The answer is less obvious: Bill was too emotionally attached to Corning and its stock. He wasn’t prepared to part ways with it because he never imagined such a day would come. In his latest book, Mastering the Market Cycle , investing guru Howard Marks identifies one of the greatest and most underappreciated attributes of superior investors – an unemotional nature. Here’s how he explains it... One of my most persistent observations and – in a related way – one of the questions I’m most often asked is whether people can learn to be unemotional. My answer is “yes and no.” I think it’s possible for people to be on the lookout for potential emotional influences and to try to restrain their effect. But I also think people who are inherently unemotional will have it much easier. A lack of emotionality is a gift (in investing, that is, but perhaps not in other areas, like marriage). It’s not my point that emotional people can’t be good investors, but it will require a great deal of self- awareness and self-restraint. Let Bill’s heartbreak serve as an important lesson: It’s easy to get complacent about a stock that has treated you well... But never allow yourself to get so emotionally attached that it clouds your judgment. The Corning story offers two lessons that are becoming important for investors these days... Marks eloquently sets the stage for them both, with the following excerpt from his book.
(As an aside, the seventh chapter, titled “The Pendulum of Investor Psychology,” is a must- read for serious investors.) As he wrote... In the real world, things generally fluctuate between “pretty good” and “not so hot.” But in the world of investing, perception often swings from “flawless” to “hopeless.” The pendulum careens from one extreme to the other, spending almost no time at “the happy medium” and rather little in the range of reasonableness. First there’s denial, and then there’s capitulation. During the late ‘90s, Corning’s business was “pretty good.” It started doing what many companies do when times are good – acquiring smaller competitors and consolidating the industry. The acquired companies brought lots of new revenue streams and caused earnings to soar. Investors, in turn, saw the exceptional numbers and assumed Corning’s earnings would be flawless for years to come. Investors generally figure the near future will look a lot like the recent past. Most of the time, they’re pretty much right. But eventually, the future doesn’t look as good as the recent past, which triggers an abrupt shift in investor expectations... and causes stock prices to plummet. In the fall of 2000, it became increasingly clear that Corning’s stock was priced to perfection and that its future would likely be far less than that. The pendulum of investor psychology suddenly swung toward hopeless.
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