From "The Intelligent Investor" by Benjamin Graham -
The eight chapter - indicated as the most important ideas in the entire book by Warren Buffet -
The Investor and Market Fluctuations"
"Market Fluctuations of the Investor's Portfolio"
except from this section:
"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? Here practical questions present themselves, and the psychological questions are likely to grow complicated. 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. Your shares have advanced, good! Tou are richer than you were, good! But has the price risen too high, and should you think of selling? Or should you kick yourself for not having bought more shares when the level was lower? Or--worst thought of all--should you now give way to the bull-market atmosphere, become infected with the enthusiasm, the overconfidence and the greed of the greed of the great public (of which, after all, you are a part)and make larger and dangerous commitments? Presented thus in print, the answer to the last question is a self-evident no, but even the intelligent investor is likely to need considerable will power to keep from following the crowd.
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 him something to do. As the market advances he will from time to time make sales out of his stockholdings, putting the proceeds into bonds; as it declines he will reverse the procedure. These activities will provide some outlet for his otherwise 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."
Here I would like to simply interject the thought that the wise investor would also consider placing those otherwise pent-up-energies into studying and investing in art since art has very often been the best investment:
"Why Invest in Art?- 12-13-2011C"
11-29-2012F by Walter Paul Bebirian