| Century Management's Four Principles of Successful Investing
1.
Always Use a Business Approach
2. Always Use a Margin of Safety 3. The Market Acts Like a Manic-Depressive 4. Price Determines Return Principle #3 - The Market Acts like a Manic Depressive. The market is like a "manic-depressive" partner. When the partner is positive, energized, and jubilant, he is willing to buy your share of the partnership at any price because he feels invincible. However, when the partner is depressed and you can hardly get him out of bed, he will give his share of the partnership away at any price because he is so depressed. At the extremes, the market is not very efficient or rational and is, therefore, subject to the manic-depressive swings of the investing public. The majority of investors let their emotions take over their decision-making process in deciding whether to buy, sell or hold. Why does this happen? In most cases it happens because the investor does not really know what the companies (investments) are worth. In other words, the investor does not know the "Private Market Value" of the company. If you do not know what something is worth, how could you possibly know whether it is cheap or expensive? Without this knowledge, your decisions are subject to guesswork and emotional swings. Even if you invest in a company and are lucky enough to have it go up, how would you know when to sell if you do not know what it is worth (PMV)? Don't subject your life-savings to guesswork. Be an investor, not a speculator! "Wall Street's" research does not make matters better since the typical brokerage firm has tremendous inherent conflicts of interest. How can a broker recommend that a retail investor buy a stock at the lowest price while, at the same time, his brokerage firm's investment banking department is trying to get the highest price for their institutional client. Institutional clients will always get preferential treatment because they pay the brokerage firms millions of dollars to perform underwriting tasks and other investment banking functions? Under the circumstances, fair and objective advice for the retail investor is just not possible! The manic-depressive swings also play into the hands of crowd psychology. At Century Management we like to take advantage of this psychology and sell into the market mania and euphoria. Then, when stocks are oversold and are trading at their maximum pessimism (selling as low as $0.25 to $0.50 on the dollar), we scoop up the bargains. |