It’s Not Easy - Memo By Howard Marks

- Investors can be tempted to sell during corrections like this one. Oftentimes emotional behavior is cloaked in intelligent-sounding rationalizations like “it’s important to sell down to your comfort level.” But the valid reasons to sell are principally because you feel fundamentals have deteriorated or because the price has risen enough. Selling to get more comfortable as prices fall (just like buying for that purpose in a rising market) has nothing to do with the relationship between price and value.

- Another reason to sell, of course, is fear that the slide will continue. But if you’re tempted to do so, ask yourself first whether you think the stock market is going to rise or fall tomorrow, and second how much you’d bet on it. If you can tackle those decisions in your head rather than your gut, you’ll probably admit you have no idea what’s going to happen in the short term.

- Regardless of the outlook for fundamentals or the relationship between price and value, many people sell in a downdraft because, well, you have to do something, and they feel it’s unreasonably passive to just sit there. But something about which I feel strongly is that it’s not the things you buy and sell that make you money; it’s the things you hold. Of course you have to buy things in order to hold them. But my point is that transactions merely adjust what you own, and engaging in them doesn’t necessarily increase potential profit. Sticking with what you own may be enough – although it may not be easy in tough times.

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