One of the best quotes I’ve read on value investing, which is applicable across an infinite number of domains, is the below from Joel Greenblatt:
“Prices fluctuate more than values—so therein lies opportunity. Why do the prices fluctuate so widely when values can’t possibly? I will tell you the answer I have come up with: The answer is I don’t know and I don’t care. We could waste a lot of time about psychology but it always happens and it continues to happen. I just want to take advantage of it. We could sit there and figure it all out, but I like to keep it simple. It happens; it continues to happen; the opportunities are there.”
The article is interesting throughout and serves as a good 10-minute introduction to value investing.
Greenblatt’s point is that while there might be use in finding out why prices move (for example, to identify whether it is likely to stop happening), knowing why they move is not important. As an investor it’s more important to identify those stocks which are mispriced, and try to make as few mistakes as possible. (after all, if it ever stops happening, you won’t find any more value stocks to buy)
Nassim Taleb also popularised a concept known as the Green Lumber Fallacy, which is similar. A successful lumber trader spent his whole career thinking green lumber was wood painted green, and not actually fresh cut timber. Knowing the difference was clearly not a requisite for success.
Greenblatt also wrote “The little book that still beats the market” which I have not read.