In this chapter, Tengler discusses why an emotionless approach to investing is important. She describes 7 learning points she has picked up, the cognizance of which can help investors improve their returns:
1) Wall Street tends to extrapolate current trends to infinity
In the mid-1970s, when the US economy was mired in a prolonged recession, it seemed to many as if the US would never again enjoy prosperity. In the late 1990s, it was believed that recessions were a thing of the past.
2) It is rarely "different this time"
One of the biggest challenges faced by investors is being able to resist popular assumptions that stock markets will behave differently as a result of new forces.
3) Market pullbacks are great investment opportunities
Certain industries and sub-industries can become out of favour, but often unjustifiably so.
4) Go with your research, not Wall Street's
The best time to invest in a stock is when analysts are down on it.
5) Investment managers need to challenge their beliefs every day
Feeling uncomfortable about an investment is good, because it makes the investor search for more facts, keeping an open mind.
6) Use the financial media to your advantage
The "always-on" media can exacerbate declines, creating opportunities for those who remain disciplined.
7) It's all relative
While Graham and Dodd focused on absolute returns, Tengler argues that its relative valuation that matters