Keeping Emotions out of the Buying Processby James Montier
Sir John Templeton had one of the best methods for keeping emotion out of the process. He used to do his calculations of intrinsic value when there wasn't a lot going on in the market. He'd then place a margin of safety on those intrinsic values and place buy orders with his broker at, say, 40% below the current market price. I'm sure a fair amount of those orders never got filled, but if there was an enormous dislocation in the market or in an individual stock, the order would fill. Psychologically, that kind of pre-commitment is a very powerful tool to help us in periods of emotional turmoil. If you look at something when it's just gone down 40%, you're probably not going to want to touch it because it just warned on earnings or something similar.