Can’t get no satisfaction? Volunteering and getting fit simultaneously might do the trick.

Combining volunteering with exercise significantly boosts life satisfaction, according to a London School of Economics study. Participants reported a 27% jump in “belonging” and a 21% drop in “mental distress,” with a well-being boost of around 54%.

By the way, our very own Shawn O’Malley, the chief editor of our newsletter, just went on Millenial Investing to discuss key takeaways from studying The Essays of Warren Buffett.

Today, we'll discuss how some of the greats — including Buffett, Joel Greenblatt, and Bill Miller — regulate emotions in their investment processes.

All this, and more, in just 5 minutes to read.

— Matthew

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"Brave doesn’t mean you’re not scared. It means you go on even though you’re scared."

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Regulating Emotions to Invest Like the Best

Cutting through the noise

Sir John Templeton, the renowned mutual-fund manager and a trailblazer in international investing, chose to escape the busyness of Wall Street by living far away in the Bahamas. He read The Wall Street Journal days after publication, avoiding emotional reactions to day-to-day news headlines. Templeton accepted occasional 10-15% losses on single days, but he understood that panic wouldn't serve his long-term strategy.

Today's investors often feel overwhelmed by a flood of information. It's easy to lose sight of what truly matters. Below, we explore how some of the greatest investors have navigated the chaos and regulated their emotions. Investing, markets, economics — all of if —is largely about behavior and handling emotional intensity. As Charlie Munger put it, “How could economics not be behavioral? If it isn’t behavioral, what the hell is it?”

Drawing insights from legends like Warren Buffett, Bill Miller, and Joel Greenblatt, we highlight a few of their strategies for emotional management and decision-making in investing.

Joel Greenblatt: Know what you own

In 1985, at 27, Joel Greenblatt founded Gotham Capital. He achieved an average annual return of 40% over 20 years, turning an initial $1 million into $836 million. His journey, however, wasn't without setbacks. 

An early investment in Florida Cypress Gardens turned problematic when a sinkhole swallowed the main pavilions. He couldn’t have predicted that he’d invest in something that had a sinkhole under it. 

His point: Events happen that you can’t anticipate. Investing is about the quality of your thoughts, not solely the hours crunching numbers, calculating intrinsic value, and typing up reports. Uncertainty is one of the few certainties in investing, and avoiding catastrophe and panic is a superpower. Greenblatt still feels a kick in his stomach when he loses a lot of money, but he’s usually adjusted within two or three days.

"I’ve made big mistakes with big positions, and then bad things just happen," Greenblatt has told William Green on the Richer, Wiser, Happier podcast. "Part of what you get paid for in this business is your stomach. You need to handle the pain, especially with a concentrated portfolio. You have to have a little bit of a screw to take the pain, especially with a very concentrated portfolio that a number of people I know pursue.”

Greenblatt’s approach echoes John Maynard Keynes’s timeless observation: “Markets can stay irrational longer than you can stay solvent.” He believes that fully understanding what you own is crucial for managing emotional reactions because fully knowing your portfolio is “the only way I think you can deal with the emotion because you realize what you own is still good.”

Bill Miller: Harness the power of time

Bill Miller, the legendary value investor, beat the S&P 500 for 15 consecutive years. Today, his portfolio is heavily invested in Amazon and Bitcoin, which he started buying at around $200 per coin. So he took a major hit in 2022, when both assets fell drastically. 

But his deep understanding of risk tolerance guided him. Miller knows the value of knowing your risk limits, because he knows many investors overestimate their capacity for risk. When times are good, it’s easy to think you could survive a downturn. It’s much harder to absorb paper losses when stocks are falling suddenly. 

“People bail at exactly the dumbest point, at exactly the moment when they should be buying your funds because they get clobbered,” Miller noted.

Miller’s strategy involves ignoring market moods and focusing on long-term gains. He looks for opportunities in uncertain times, often targeting undervalued businesses. His “time arbitrage” approach involves looking further ahead than most investors, finding value beyond short-term data and market reactions.

He says the most enduring edge in markets is behavioral, “as humans tend to react emotionally, especially during abnormal and volatile times. As a result, we tend to see the greatest investment opportunities when markets are panicking.”

What also helps Miller is that he buys stocks at points of low expectations: A stock’s performance depends on fundamentals relative to expectations. For big winners, he wants the gap between how a company performs and how it’s expected to perform to be widest. One example is Amazon, which Miller has owned for decades and made a fortune on. Last week, it hit another fresh all-time high after more than doubling since last spring alone.

The other distinguishing factor for Miller comes straight out of Buffett’s playbook: Play the long game. Miller and other elite billionaire investors are essentially playing a different game from nearly everyone else, as their time horizon is much longer. 

Miller calls it “time arbitrage” because it’s about looking further out than anybody else. All companies have short-term problems. But to look beyond one earnings report, a few headlines, and a few Federal Reserve decisions is where Miller finds his brightest opportunities. He harnesses the precious value of time.

“In an environment with massive short-term data overload, inefficiencies are likely beyond 12 months,” Miller said.

Warren Buffett: Uncertainty is your friend

Buffett, the most famous investor of all time, took over Berkshire Hathaway in 1965 and has since averaged a remarkable 20% annual return. Through all kinds of market conditions, Buffett has thrived by embracing uncertainty and making strategic decisions during times of fear.

“We have usually made our best purchases when apprehensions about some macro event were at a peak,” Buffett wrote in his 1994 letter to shareholders. “Fear is the foe of the faddist, but the friend of the fundamentalist.”

During the Great Financial Crisis in 2009, he reiterated, “A climate of fear is the best friend of the investor. Those who invest only when commentators are upbeat pay a heavy price for meaningless reassurance.”

In October 2008, with fear all over Wall Street, Buffett said he was “buying American” and correctly predicted that most major companies would set new profit records five, 10, and 15 years later.

Buffett wrote: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”

For years, Buffett has described himself as a “focus investor.” He ignores the crowd and stays committed to investments he understands. Today, that means not chasing AI stocks he says he doesn’t fully understand. It also means sitting on a “boatload” of cash during today’s bull market, ready to buy undervalued assets sometime in the future.  

He likens fear in investing to a virus, noting that it affects some more than others, but acknowledges the predictability of cycles of greed and fear. Just as investors panicked in 2008, early 2020, and throughout 2022’s selloff, Buffett was scooping up shares in great companies at fair prices. 

“Uncertainty actually is the friend of the buyer of long-term values,” Buffett has stated.

Dive deeper

For more, listen to William Green’s compilation of interviews with Greenblatt, Miller, Howard Marks, and François Rochon.

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