If you’re going to be a long-term investor, focused on buying good companies whose value can compound over time, and not just a trader who’s trying to jitterbug in and out of positions for a gain in a month or a year, then at some point you have to remove your thought process from “the market.” You have to think about what a company is worth to you as an owner, not just what you think the market will believe it to be worth in a month or a quarter.

And that’s hard, because you also have to balance it against the fact that you might be wrong… and there are probably limits to how much money you’re willing to lose through your commitment to a company that you think is a good buy. It’s a balancing act, and in striking that balance and fighting our own worst tendencies of self-destruction we can use tools like asset allocation (diversifying across sectors and stocks), stop losses (preventing catastrophic loss when wrong), and, hopefully, a blindfold that you can strop on so you don’t need to watch the price of every stock you own every single day. We all needed such a blindfold this week.

My tendency is to fall in love with my favorite companies to probably too much of a degree, so that’s the bias I come in with — when I’ve found a company with great management, compelling fundamentals, and prospects for strong long-term growth, I am likely to pay more than the market thinks is wise for those companies sometimes… and as I learn more about those companies through years of ownership, I’m also unlikely to be very disciplined about selling them on bad days.

So I try to fight that tendency to some degree, but I also know that as a market watcher, as a guy who literally sits in his garret watching the tickers pop up and down all day while I’m trying to concentrate on reading 10-Ks, I also have an inbuilt destructive tendency to want to take action, even though I know, with little doubt, that if I’ve selected companies that can be strong long-term compounders I’d be dumb to sell just because they moved 20% up or down. That would mean I’d just have to find ANOTHER great company to buy, and those tend to be pretty thin on the ground. ...