The secret about beating the market is all about doing the exact opposite, every time you have a fundamental sounding argument that the market is wrong. One example of this procedure is to buy stocks during panic situations. However there is a big problem: if the panic goes on like 2008, do you have the faith to holding on to your rationale when the world seems to be falling apart?

Many investors don’t. I have selected a few quotes by the legendary investor Peter Lynch about this matter, let’s see what he has to say:

“Keeping the faith and stockpicking are normally not discussed in the same paragraph, but success in the latter depends on the former. You can be the worlds greatest expert on balance sheets or p/e ratios, but without faith, you’ll tend to believe the negative headlines. You can put your assets in a good mutual fund, but without faith you’ll sell when you fear the worst, which undoubtedly will be when the prices are the lowest.”

“A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer. But what about the longer term and wider changes? A substantial rise in the market is at once a legitimate reason for satisfaction and a cause for prudent concern, but it may also bring a strong temptation toward imprudent action.”

“It is for these reasons of human nature, even more than by calculation of financial gain or loss, that we favor some kind of mechanical method for varying the proportion of bonds to stocks in the investor’s portfolio. The chief advantage perhaps is that such a formula will give the investor something to do. As the market advances, the investor will from time to time make sales out of his stock holdings, putting the proceeds into bonds; as it declines he will reverse the procedure. These activities will provide some outlet for his otherwise too-pent-up energies. If he is the right kind of investor he will take added satisfaction from the thought that his operations are exactly opposite from those of the crowd.”

“What sort of faith am I talking about? Faith that America will survive, that people will continue to get up in the morning and put their pants on one leg at a time, and that the corporations that make the pants will turn a profit for the shareholders. Faith that America is a nation of hardworking and inventive people, and that even the yuppies have gotten a bad rap for being lazy.”

These words, in my opinion, are pure wisdom. I would only add that the easiest way to keep the faith is to invest only the savings that you know you won’t need in the medium term, this way you avoid thinking about the temporary short term losses, focusing on the long term merits of your investment rationale.