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Lesson Eight: Navigating Market Swings: Instinct vs. Discipline in Investing
By Michael Lamonaca, 18 July 2025
In the world of disciplined investing, it is vital to understand the profound influence of human instincts. While our decisions are often rooted in experience and knowledge, the raw force of instinct frequently dictates behavior in the unpredictable currents of the stock market.
For those observing the market in the short term—typically periods under three to four years—it becomes clear that investors often follow the whims of what can only be described as “Mr. Market.” In this emotional landscape, decisions are driven by sentiment, with people chasing prices higher rather than diligently assessing underlying intrinsic value.
A cornerstone principle in truly disciplined investing suggests a contrarian approach: cultivate caution when collective enthusiasm runs high, and embrace boldness when fear grips the market. This philosophy encourages an investor to accumulate strategic holdings when prices are depressed and to exercise restraint, or even consider selling, when prices become inflated. This deeply resonates with the “il dolce far niente” approach, advocating for calm, thoughtful action against the emotional tide.
This leads us to the value investing approach, where one meticulously examines the financial properties of a stock to form a firm idea of its true intrinsic value. The mindset of a value-based investor is to patiently profit from accumulating shares. The greater the discrepancy between a stock’s market price and its estimated intrinsic value, the larger the potential for long-term wealth accumulation over time. This embodies a profound buy-and-hold strategy, central to allowing compounding to work its magic.
In stark contrast lies the emotion-based approach, which is solely driven by market perception without any reference to the actual value of the underlying assets. An investor whose decisions are governed by emotions often finds themselves trading stocks frequently, typically resulting in acquiring fewer shares at a higher price. This speculative “buy-sell strategy” is antithetical to the steady path toward financial freedom sought by disciplined investing.