Learn to invest with Buffett

Chapter 102

Chapter No.17 Investing is as simple as that - you can also surpass Buffett

Chapter No.17 Section 1 It is very important to choose the right investment tool
Choosing the right investment tool for you will get twice the result with half the effort. If you choose the wrong investment tool, you will suffer a complete failure.

--Warren Buffett
The first step to Buffett's success is to choose the right investment vehicle-limited partners.There are many options for his investment vehicles, but according to his specific situation, he finally chose "limited partners", which he believes is the easiest and most profitable approach.

The reason why this approach is simple is that as long as the number of partnership investors in a company does not exceed 100, it is not subject to the SEC's rules on mutual fund management.Otherwise, once it is included in a mutual fund, there are many regulations that the company must abide by, and it must be subject to strict constraints.An added benefit of using "limited partners" is that the firm can charge whatever fees it wants, whereas mutual fund fees are strictly limited by federal law.After choosing an investment vehicle, Buffett focused on finding a partner.

After finding the ideal partner, Buffett co-founded Buffett Co., Ltd. with several other investors, and he was the main partner.Together, the partners pooled $10.5.

The operating method of Buffett Partnership Co., Ltd. is also quite simple. When the profit of the limited partners exceeds 6%, Buffett will charge 25% of the excess, because he believes that every investor should have at least the equivalent of a local bank's current account. The profit guarantee of the savings interest rate level, so if the profit does not reach the level, he will not charge any fees.At the same time, if there is a loss in any year, he will allocate funds from the previous year's surplus to make up for this loss.But don't worry, he hasn't lost money yet.

Because of choosing the right investment tools, Buffett’s original accumulation was quickly completed, his career gradually developed, and he finally became the stock god admired by the world.

As an average investor, when you first start investing, you will hear all kinds of attractive opportunities to make big money.These include foreign stocks, closed-end funds, penny stocks, penny stocks, options, futures, gold, convertible bonds, junk bonds, tax-exempt securities, and real estate partnerships.

Buffett reminds investors that investment must be simple, basic and easy to understand, and don't try to cover everything.No one has had great success buying options, buying and selling futures, and manipulating foreign stocks.
The key to success in investing and in life is focus.Because of the high risk of loss, novice or inexperienced investors should invest more simply and avoid involving many investment projects.The following is a brief introduction to several investment tools for investors to choose from.

1. Options
Stock options give investors the right to buy or sell stocks at a specific price at a certain time in the future.For example, if XYZ stock is currently trading at $50 a share and you think the stock has upside potential, you might buy options.Let's say you buy, say, 6 shares of XYZ stock at $55 per share in 100 months' time.If the stock goes to $70 a share, you can make a nice profit on this small investment in options.

Options are fraught with risk because investors not only have to judge the direction of a stock, but also when it will go up or down.As long as your stock option investment does not exceed 10% of your total investment amount, it is fine.But even so, options are still very risky.

On many occasions, Buffett has expressed his disdain for those derivative securities, such as options and futures and contracts with trading privileges.Because these securities are betting against the short-term price changes of the market, this is not so much an investment as a behavior that is not even as good as gambling.For example, when an investor uses or requires a certain option, he bets on the basis of the recent stock market trend and obtains more profits through the leverage adjustment of the market, rather than based on the analysis of all data .

2. Futures
Like stock options, futures trading is also a contract or agreement to buy or sell real commodities (food, metals, energy products) or financial futures (interest rates, foreign currencies, stock indexes) at a certain time in the future at a specific price.

Like options, futures are highly speculative and should only be attempted by those with several years of successful investing experience.People who fanatically dream of "getting rich overnight" and investing large amounts of their available capital in options or futures are asking for trouble.Trading options and futures is much riskier than trading common stocks and can cause investors to suffer huge losses.

3. Gold
Gold has been overvalued for years.Buying gold pays no dividends, and its appeal is based on the fear of currency debasement.

4. Debt
Convertible bonds that can be exchanged for stocks have poor liquidity, and if you invest too much money in convertible bonds, you may face greater risks.

As for junk bonds, they are the lowest volume and riskiest bonds.Since bond pricing is tied to interest rates, you must make sure you have sufficient experience buying bonds and evaluating interest rates before investing.
When investing, investors must choose investment vehicles carefully.When you start investing, keep your investments simple and only invest in domestic stocks or mutual funds.The more types of investments you have, the harder it is to keep track of where they are going.Your return in the stock market depends on your efforts.Only those with a few years of successful investing experience should try it.

Investment motto:

Investment tools are the "guns" for investors to decisively fight the investment market. Only by selecting tools that suit you and have excellent performance can you win in the investment market.

(End of this chapter)