Our approach has always been to find compelling bargains. We are never fully invested if there is nothing great to do. We test all our assumptions with sensitivity analysis. Through stress testing, we gain a high degree of conviction that we are right. We are prepared for things to go slightly wrong because we adhere to a margin-of-safety principle that gives us the necessary courage to go against the tide.

Yet, we don't actually think of it as courage, but more as arrogance. In investing, whenever you act, you are effectively saying, "I know more than the market. I am going to buy when everybody else is selling. I am going to sell when everybody else is buying." That is arrogant, and we always need to temper it with the humility of knowing we could be wrong-that things can change-and acknowledging that we have a lot of smart competitors. Thus, in worrying about all the things that can go wrong, you can prepare, you can hedge-and you must remember to sell fully priced securities so that you are underexposed when things go badly. All these elements give us the courage to follow our convictions.

The last point I would make is that your psychology as an investor is always important. If you lose your confidence, if you've made too many mistakes, if you are down too much, it becomes very easy to say, "I can't stand being down more than this." Unless you have a bet-the-business mentality, you would worry about your business, about client redemptions, and about your own net worth in the business.

So, by being conservative all the time-by being both a highly disciplined buyer to ensure that you hold bargains and a highly disciplined seller to ensure that you don't continue to own things at full price-you will be in the right frame of mind. Avoiding round trips and short-term devastation enables you to be around for the long term.