In his 2012 Letter to Shareholders, Amazon.com CEO Jeff Bezos wrote:
"As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – ‘In the short run, the market is a voting machine but in the long run, it is a weighing machine.’ We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company."
Repeating again for emphasis: "We aren't 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way." I believe these simply stated words are highly useful for all investors.
Why did Mr. Bezos choose to make such a remark at a time when his company's stock price was going up, and the future looked bright? I believe it is because he understood that our human nature causes us to focus on short-term market fluctuations, distracting us from what really matters.
Just as it can be exciting to see an investment zoom to new heights in the midst of a bull market, many investors suffer feelings of depression when their investments temporary dip. Not only is this an unpleasant experience (I know quite well how it feels), but these mood swings can cause people real and long-lasting financial harm when they result in poor decisions.
Whether you are an expert investor or just beginning, in order to fully benefit from your investment program, it is imperative that you guard against the temptation to let short-term market movements dictate your moods and decisions.
I personally find it helpful to periodically evaluate the long-term economic value of my investments as well as that of the overall market. This method keeps me grounded, helping me to make rational decisions in spite of emotion.
If you're unable to use such a method, then I suggest that you find a trustworthy investment professional to help with investment decisions during periods of heightened market volatility. And remember, you're not 10% dumber when your investments go down by 10% (and neither is your advisor).
If you have never read the Amazon.com Letters to Shareholders, written by CEO Jeff Bezos, I highly recommend that you read them all - starting with the first, the 1997 letter. His letters contain a number of concepts that can help you invest better. To access Amazon.com's Letters to Shareholders, search Google for “Amazon annual reports.”