James Montier’s answer to a follow-up question at the European Investing Summit 2012 (for those interested, the next Investing Summit is on Japan and will take place November 7-8....more information can be found HERE).
Question: Going back to the lowest point of the markets in late 2008/2009, what was going through your mind? How did you retain the courage and confidence to carry on?
James Montier: In late 2008 and early 2009 I was getting very excited because I was seeing a large number of stocks appearing on my value screens, and seeing cheap valuation at the market level. So whilst a lot of people were focusing on the things that could go wrong (and there was no shortage of them back then), because I was focused on valuations I was getting buy signals. The key point is to have a good process and to stick to it. This cuts down on the amount of decision making under duress that you are forced to conduct. Sir John Templeton used to talk about doing his analysis on quiet days in the market and placing limit orders with brokers, he knew when the stock was down 50% he wouldn’t want to buy it (emotionally) but his pre-commitment strategy forced him to do so.
Seth Klarman puts it this way “One of our strategies for maintaining rational thinking at all times is to attempt to avoid the extreme stresses that lead to poor decision making. We have often described our techniques for accomplishing this: willingness to hold cash in the absence of compelling investment opportunity, a strong sell discipline, significant hedging activity and avoidance of recourse leverage, among others.”