Here's part #2 in our series featuring excerpts from The Big Money. Today's excerpt is from Chapter Four which is titled “Buy and Sell Disciplines: Understanding Two Key Steps.” Here's what the book has to say:
We Had No Choice; We Had to Own Stocks
Although I felt a lot of stress and unhappiness about the massive paper losses in the 1987 market and the uncertainty of it all, I did not look out the window with a vacant stare, I did not go to emergency prayer meetings, and I did not wring my hands and remain passive. I had to own stocks, and I had developed buy and sell disciplines to help in what would be months of uneasy action in an expensive equity market.
‘The degree of one’s emotions varies inversely with one’s knowledge of the facts – the less you know that hotter you get.’ – Bertrand Russell
One thing I observed in the aftermath of Black Monday was that many investors were completely emotional and didn’t bother to discuss or use research, so their knowledge was not being put to work. This meant that there would be a lot of opportunity for others if we could figure out what to buy next. Russell’s adage about knowing less and being more emotional was profoundly evident.
When the Chips are Down: A Tale of Two Semis
I faulted company management for a business model that lacked focus and for having too many product lines to feed from its research engineers. This is a real problem when you consider that the most important market of all, personal computers, was coming on strong, and National Semiconductor was far from being the leader that Intel was.
NSM stock had come down from over $20 to $15, but earnings going forward were erratic, reflecting these problems. The ups and downs had more downs than ups over the next couple of years. So a buyer saw his shares drop to $9.88 by October 1987, but the stock just continue to melt away until finally bottoming out at around $3 in 1990…Those that jumped and used only price as a basis for their decision did the wrong thing.
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