Flourish ... or freeze in fear

Volatile markets are manna from heaven for investors who hold their nerve

- GREG HOFFMAN

Steve Johnson and I grew up together in Wellington, a small rural community in central-western NSW. In Year 12 our economics class took part in the ASX’s sharemarket game and we teamed up, finishing third out of more than 1500 teams after finding a quirk in the system related to the time it took to post the discs back and forth between the ASX and our school.

Splitting the $500 prize money was a great result, but we had an awful lot to learn. We moved to Sydney together in 1996 and soon after discovered the philosophy of value investing – the idea of figuring out a stock’s true or “intrinsic” value and trying to buy for substantially less than that. The wisdom of Warren Buffett and his teacher and mentor Ben Graham became our philosophical north star.

Steve and I were fascinated by human behaviour and what we’d later hear Buffett’s business partner, Charlie Munger, term “the psychology of human misjudgement”. We quickly learnt that sharemarket investing sits at the intersection of business, mathematics and human behaviour.

In 2004, with some real-world success (and failure) under our belts, we purchased the Intelligent Investor sharemarket advisory service with the support of some brave financial backers. There we took our knowledge and experience to a deeper level, providing analysis for and engaging with tens of thousands of investors.

We had triumphs and disappointments over the next few years and then along came our biggest challenge, the GFC. There were many difficult days heading into the teeth of the GFC, but out of the depths of that episode we recommended some life-changing investments to our clients and profited handsomely by investing alongside them.