market folly

For Market Folly's quote of the week this time around, we turn again to legendary investor Seth Klarman. To put this quotation in context, keep in mind that Klarman often holds a large amount of cash on hand for when opportunities arise. Below, he touches on the battle between human emotion and rational thinking:

"The overwhelming majority of people are comfortable with consensus, but successful investors tend to have a contrarian bent. Successful investors like stocks better when they’re going down. When you go to a department store or a supermarket, you like to buy merchandise on sale, but it doesn’t work that way in the stock market. In the stock market, people panic when stocks are going down, so they like them less when they should like them more. When prices go down, you shouldn’t panic, but it’s hard to control your emotions when you’re overextended, when you see your net worth drop in half and you worry that you won’t have enough money to pay for your kids’ college."

~ Seth Klarman

Since he brings up the notion of consensus views and so we want to make sure everyone had a chance to read this great piece outlining consensus versus variant perceptions in today's market. For more from the Baupost Group manager, check out Seth Klarman's recommended reading list as well as an in-depth profile of Klarman.