Learn to invest with Buffett

Chapter 44

Chapter 7 Decipher Buffett's Timeless Buying Rules
Chapter 7, Section 1 The time of greatest fear is a good opportunity to buy
Of course, we will never be able to accurately estimate the annual cash inflow and outflow of a company, so we try to use a conservative method to estimate. Come up with the company in the form of evaluation.Even so, we will still make mistakes. You may still remember that I once said to people in industries such as stamp collecting, textiles, shoemaking and second-rate department stores.

If you want to have excess returns, you must wait until the capital market is very bleak and the entire industry is generally pessimistic. At this time, investment opportunities will appear. At present, we are still far away from that situation.

--Warren Buffett
Buffett often says that the secret to his investing success is to be fearful when others are greedy and be greedy when others are fearful. In March 2009, the once-in-a-century financial crisis caused the U.S. stock market to fall to its lowest point in 3 years.In the midst of fear, Buffett's Berkshire company invested heavily, and Buffett's private stock account also bought heavily (this is legal in the United States and currently prohibited in China). In the third quarter of 12, he bought 2009 superstar stocks: increased his holdings of Wells Fargo from 3 shares to 800000 shares, newly bought 14812857 shares of Wal-Mart and 42 shares of Ingersoll Rand, and increased his position by nearly 636600/1 of the market value.

In stock investment, there is a very important principle, which is to implement operations that are opposite to the general public's psychology, that is, you should be vigilant when the masses are optimistic, and have the courage to undertake when the masses are pessimistic.Because most of the masses are "grabbing up and killing down".

In stock theory, the higher the stock price, the higher the risk, but the public is more confident; the lower the stock price, the lower the risk, but ordinary investors are getting more and more worried.For investors, how to maintain rational research and judgment when the speculative frenzy is high, and how to maintain sufficient confidence when the masses are afraid, has a great relationship with whether their investment can be profitable.

For example, at the beginning of 1987, general economists or economic experts in Taiwan believed that the appreciation of the Taiwan dollar would inevitably drag down Taiwan's export-oriented economy and indirectly slow down economic growth, which would also be reflected in the stock market quarter by quarter. It is weak, and the season is worse than the season.However, the result was that the stock market hit new highs in a row, and in September, it rose even more violently.Just when the masses were optimistic and the stock market was about to hit 9 points, bad luck came and the stock market plummeted. Coupled with the impact of the U.S. stock market crash, the Taiwan stock market fell by more than 5000%.These phenomena all show that the trend of the stock market often runs counter to the psychology of the masses.

Sometimes the main force also adopts an operation method that is opposite to the general public psychology. For example, when the masses are pessimistic and sell stocks, the main force buys vigorously;

All in all, the psychological research of the masses should not be ignored in stock investment.Successful investors are usually independent, do things that others dare not do, and choose good and stubborn investors.

To operate in reverse with the general masses, one must understand the general psychology of the masses.To understand the general psychology of the masses, the following indicators can be referred to:
1. Opinions of investment advisors
Most investment advisors encourage clients to buy on dips and sell on rallies. However, many examples in reality show that investment advisors often make the opposite advice.Therefore, when most investment publications are optimistic, they tend to approach the peak; when most investment publications are pessimistic, they tend to approach the bottom.

2. Whether the popularity of securities companies is buoyant
If the securities company used to be noisy, but now it is sparsely populated, and customers ignore its good or bad, indifferent to the ups and downs of the stock price, playing chess and chatting, and the newsstands cannot sell books on stocks, and the stock price has usually fallen to the bottom at this time.On the contrary, when the popularity is boiling, the full limit will be reached as soon as the market opens. At this time, the stock price is usually close to the peak, so it is advisable to reduce the shareholding or withdraw from the wait-and-see.There are two common sayings in securities, that is, "People give up, I take, others take, I give" and "The time to buy is when people are not together" are the best portrayals.

3. Mutual Fund Cash Ratio
More cash in a mutual fund's portfolio indicates that stock prices will fall; less cash in its portfolio indicates that stock prices will rise.Therefore, the cash holding ratio can be used as an indicator. When the cash holding ratio is very high, the stock price is often close to the bottom; conversely, when the cash holding ratio is very low, the stock price is often close to the peak.

4. The trend and amount of financing balance
Since the investment balance represents the increase or decrease in investor confidence, in the stock price cycle, when recovering from the bottom, the financing balance slowly increases; as the stock price rises, investor confidence increases, and the financing amount and increase speed gradually increase, and finally reach vertex.At this time, the financing part becomes an important source of stock supply. When the reversal occurs, the stocks with more financing tend to fall the most. Anti-mass psychological operations can play a surprising role in winning.Sun Tzu said: "All fighters use righteousness and surprise to win." It means that in general combat, you use the normal laws of the army to fight the enemy, and then adapt to the changes in the battle situation to win with surprise soldiers.In the stock market, in addition to mastering the application of fundamental analysis, financial analysis and technical analysis, investors should also pay attention to the analysis of market psychology, so that they can make profits with flexible strategies according to changes in the stock market.

Investment motto:

In stock operations, there is a reference principle, which is to carry out reverse operations that are contrary to the hearts of the general public. That is, amidst the optimism of the masses, one should be vigilant, and have the courage to undertake when the masses are generally pessimistic.Because most people are chasing ups and downs.Theoretically speaking, the higher the stock price, the higher the risk, but the masses are more confident. The lower the stock price, the lower the risk, but investors are getting more and more worried.For investors, how to maintain rational judgment when the speculative frenzy is high, and how to maintain sufficient confidence when the masses are afraid, has a great relationship with whether their investment can be profitable.

(End of this chapter)