Learn to invest with Buffett

Chapter 105

No.17 Chapter 4 Buffett’s Tip: How to Continue to Obtain High Investment Returns

Your goal as an investor should simply be to buy, at a reasonable price, a fractional interest in a company that you know a little bit about and that, five, 5, and 10 years from now, is going to be profitable in real terms. It can certainly grow substantially.

--Warren Buffett
It is the ideal of every investor to continuously obtain high investment returns, but not every investor can easily obtain high investment returns.Now, let Buffett advise you and lead you to find a shortcut to obtain high investment returns.

1. Concentrate investment and condense income

In terms of investment strategy, Buffett is undoubtedly a loyal supporter of concentrated investment.The number of stock portfolios he has held for many years has not exceeded 10, which shows how thoroughly he has implemented this investment principle.Therefore, Buffett agrees with the words of the economist Keynes: "As time goes by, I am more and more convinced that the correct way to invest is to concentrate large sums of money on companies that understand and fully trust. Managers. It is simply wrong to think that one can limit risk by spreading one's capital among a large number of enterprises in which one has no knowledge or confidence."

However, this view has also encountered challenges. It is exactly the opposite of the academic view put forward by a famous business school in the 20s.The academic point of view is that the stock market is very efficient, so the calculation of enterprise value is of no importance in investment activities, and investors can eliminate the specific risks of any security by holding a diversified investment portfolio.Due to the academic brand effect of this prestigious business school, many investment managers have followed suit.They believe that price fluctuations are the biggest risk in investing.Unfortunately, time has tested everything, and practice has not proved their correctness.

Through continuous practice, Buffett came to the conclusion that if an investor can understand the company's operating conditions and can find 5 to 10 companies with long-term competitive advantages and reasonable prices, he should concentrate his investment in order to condense profits.The return rate of concentrated investment is high, and it has the effect of compound interest, which can make the property grow faster.

In addition, Buffett also suggested that investing in index funds with low fees will definitely beat the net income created by most investment experts.

2. Seize the good opportunity of the stock market decline
The idea that the stock market is going up every day is not realistic.If you want to buy a stock, do you think its price should be low or high?The answer is definitely "low is good" without hesitation.But when the stock price falls, why do you stare at the fluctuation of the stock price and feel sad?Buffett often wants to use such examples to remind people that a successful investor should look at stock price fluctuations rationally and holistically.Instead of being sad because of the stock price there, you might as well take this opportunity to find some good stocks for yourself.

It's a pity that many investors still "don't know the true face of Mount Lu".In vain they have practiced in the stock market for so many years, but they are still excited about the rise of the stock price and helpless when the stock price falls.Buffett believes that this is equivalent to paying more for the stocks they want to buy, which is kind of stupid.Only those who are short-term speculators will be happy about the rise in stock prices, and real long-term investors prefer price drops.

Buffett believes that when the stock market falls, he feels that it will be a good opportunity because he can take this opportunity to buy more stocks of good companies at low prices.He even said that as long as he is alive, he will buy stocks year after year.

3. Don’t buy “bargains”

Although "cheap goods are not good" is too extreme when applied to the stock market, we must keep in mind-cheap goods are not necessarily good goods.Even Warren Buffett, the stock god, once planted himself on cheap goods for a while.For example, he once bought a department store for a very low price, with a top-notch staff, a lot of unrecorded real estate and a lot of inventory.But he didn't make a profit until he sold it three years later.What a mistake, a miss!
Therefore, when you want to buy a stock at an unusually low price, please carefully identify it, because there may be many potential problems in this company, and its long-term performance may be many times worse than it is now.Buffett often jokingly refers to investors who take this approach as "cigar butts". Maybe he happens to find a smokeable cigar butt on the street. He may not be able to take a few puffs, but he can still take a puff.Buying "cheap stocks" is like trying to grab that last bite of razor-thin profits.

Buffett believes that such investment thinking is undesirable because:

1. The cheap product in your eyes is likely to be a defective product full of problems. Its continuous problems are enough to give you a headache.

2. The relative advantage you have when buying stocks will be exhausted in a short time, because the company's high investment and low income will gradually eat away at your funds.

Investment motto:

For anyone, investment is not a short-term matter, it should be viewed from the perspective of long-term financial management.If you want to find a way to make your wealth more purchasing power over a long period of time, you must have a long-term layout at the beginning of your investment.There is nothing more logical than buying a good company at a reasonable price, sharing its growth and obtaining a high certainty return for those who hope to obtain high returns for a long time.If you can only focus on and invest in companies that you understand, you will be richer than those who don't know where their investment boundaries lie.

(End of this chapter)