Business Blog: Hoover’s Business Insight Zone

This Whitney Tilson piece in the Financial Times touches on the work of Jason Zweig, whom we discussed a few days ago:

. . . Taking a proverbial deep breath before responding to short-term market moves goes a long way to avoiding panic-induced mistakes. This gives our “reflective” brain time to kick in and enable a more objective decision, says Zweig. Also important are regular disciplines or checklists to follow in making any buy or sell decision. Many investors institute formal reviews of any holding whose value falls a given percentage, asking what – other than the share price – has fundamentally changed in the investment thesis. This doesn’t ensure the right decision is made, but increases the likelihood that any decision is made for the right reasons.

Good advice. Sounds a lot like what Warren Buffett does at Berkshire Hathaway.

The more I read about what’s going on in the financial markets today and what has gone on to get us here — over-reliance on subprime debt etc. — the more I’m convinced that in practice the financial markets operate much less rationally than some would have us believe.