If you are not already reading his blog, you should make a point to read Barry Ritholtz’s Sunday column in the Washington Post.

I have always liked Barry’s stuff, and I felt a small swell of pride yesterday when my wife said she had read it and it sounded like stuff I always say. 😉

Here’s the money quote:

“Market tops are long-drawn-out processes; bottoms are emotional, panic-filled events. Very, very few people can call either on a timely basis. You are not one of those people.”

Don’t feel bad, I am not one of those people either.  The good news is that I don’t believe that I actually am.

If Barry and I differ on anything, it is to the degree with which we balance investment strategy and investor behavior.  As far as I am concerned, investment strategy should consume roughly 1.7% of the effort and investor behavior will determine the remaining 98.3% of all outcomes, both good and bad.

Barry makes a very reasonable point that market valuations matter (if you buy the S&P 500 at 30x earnings, as people were doing in the late 90s, it’s hard to make money).  But while agreeing that the black and white of huge valuations should govern strategy, for the remaining 90% of the time things are a lot more grey.

The critical distinction is that if you are an aggressive investor or a conservative one, you understand the difference and how your behavior and your emotions will determine your investment outcomes.