Rational: being reasonable, sensible and logical; acting calmly

Irrational: not thinking clearly; being illogical; acting emotionally

Our brain is wired to perceive before it thinks – to use emotion before reason. In the investing world, that means greed, fear, etc. can play major roles in decisions especially when markets are extreme. A big increase or decrease in valuations can make us emotionally susceptible.

Most of us aren’t taught to analyze our emotions. So, if we’re not asking – what am I feeling and why? – it is difficult to disentangle our emotions from our decision-making.

Listen to helpful wisdom:

Ben Graham: Nothing changes. The next optimism will be overdone and then the next pessimism will be overdone, and so on and so forth. The Merry-Go-Round will continue.

Phil Fisher: Investors must remove themselves from the popular emotion of the moment.

Seth Klarman: It’s hard for most investors to act in opposition to their feelings. Rather than responding rationally to market fluctuations, they respond emotionally with greed or fear.

Andrew Carnegie: Nothing tells in the long run like good judgment, and no sound judgment can remain when your mind is disturbed by the mercurial changes of the stock market. It places you under an influence akin to intoxication. What is not, you see, and what you see, is not. You cannot judge of relative values or get the true perspective of things. The molehill seems to you a mountain and the mountain a molehill, and you jump at conclusions which you should arrive at by reason. Your mind is upon the stock quotations and not upon the points that require calm thought. Speculation is a parasite feeding upon values, creating none.

Howard Marks: One of the most dependable features of the investment world is the pendulum-swings in the marketplace: between euphoria and depression; between celebrating positives and obsessing over negatives, and thus; the periodic, predictable and repeatable phenomenon of stocks often being overpriced or underpriced relative to their underlying value as businesses.

Warren Buffett: Rational thinking is not just about making money … it is a binding principle for avoiding the nonsense around you everywhere.

When others are acting irrationally, make sure you are acting rationally.