Most investors—and certainly most nonprofessionals—know little about technicals. These are non-fundamental factors—that is, things unrelated to value—that affect the supply and demand for securities. Two examples: the forced selling that takes place when market crashes cause levered investors to receive margin calls and be sold out, and the inflows of cash to mutual funds that require portfolio managers to buy. In both cases, people are forced to enter into securities transactions without much regard for price.
Believe me, there’s nothing better than buying from someone who has to sell regardless of price during a crash. Many of the best buys we’ve ever made occurred for that reason. A couple of observations are in order, however:
• You can’t make a career out of buying from forced sellers and selling to forced buyers; they’re not around all the time, just on rare occasions at the extremes of crises and bubbles.
• Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. That means it’s essential to arrange your affairs so you’ll be able to hold on—and not sell—at the worst of times.
This requires both long-term capital and strong psychological resources. And that brings me to the second factor that exerts such a powerful influence on price: psychology. It’s impossible to overstate how important this is.
Source: Marks, Howard (2011-04-19). The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) (pp. 26-27). Columbia University Press. Kindle Edition.