Recently I found an important excerpt from a letter in 1938 by one of the greatest investors of all time – John Maynard Keynes.
He made money for his fund in one of the most difficult markets of all time; his fund averaged 12% per year from 1927-1946 while during the same period the stock market fell 15% in absolute terms. That’s huge in terms of outperformance.
I have produced below the excerpt from the letter as the same talks about keeping calm when the going is tough. In fact, Keynes’s managed fund used to underperform when he used to trade aggressively; it started outperforming only when he realized the importance of buying right and sitting tight and not getting overly concerned about volatility and fluctuation in stock prices.
I feel no shame at being found still owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, of an institutional or any other serious investor to be constantly considering whether he should cut and run on a falling market, or to feel himself open to blame if shares depreciate in his hands.
I would go much farther than that. I should say it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself.
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