Greed, fear and the art of skiing

What do value investing and skiing have in common? They both require you to overcome your natural instincts.

If you've ever sampled the subtle delights of skiing—and the all too frequent and rather less subtle delights of landing on your backside—you will know that the techniques involved are somewhat counter-intuitive. A mastery of skiing requires you to conquer your fear of falling. To move forward in a controlled fashion, you must actually lean down the mountain, and to turn, you must lean into it. Until you've conquered the fear, you will try to do the opposite, which would prevent you from falling in most other situations, but which will quickly send you posterior over pectorals on a set of skis.

So it is with investing. The behaviours that usually work well in the 'real world' can be the seeds of our undoing in the sharemarket. In this article, we're going to examine some of those counter-productive behaviours, using a few examples, and look at what we should try to do instead. We won't pretend that any of it is easy, but it's always a good idea to 'know thine enemy', and most of the time in investing, 'thine enemy' is you.

To start things off, assume you have researched a company and feel very sure it is underpriced. You buy the stock, but next day the company releases news that knocks the price down 25% on high volume. What's your reaction?

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