Learn to invest with Buffett

Chapter 46

Chapter 7 Section 3 "Buy Put" is superior to other strategies

The market crash is the best time to buy stocks at a low price with a relatively large margin of safety.

--Warren Buffett
股价的不断变化造成股市的波动。股市基于其对于经济发展的反映的预期变化而运动。尽管在1929年后股市持续低迷4年多，1977年后低迷5年多，但大多数市场下跌都是较为短期的，许多时候只有4～6个月。

Buffett once said: "Sometimes the stock market allows us to buy the stock of excellent companies at unbelievably low prices, far below the agreed price of buying the entire company to obtain control. For example, we bought shares in 1973 We bought The Washington Post for $5.63 per share, and the company earned $1987 per share in 10.30. Similarly, we bought shares at an average price of $1976 per share in 1979, 1980, and 6.67. In GEICO stock, by 1986 its after-tax operating profit per share was 9.01 yuan. In a situation similar to the above case, 'Mr. Market' is really a very generous and good friend."

Buffett noted in his 1996 Berkshire shareholder handbook: "Our challenge is to keep coming up with more investment ideas as fast as our cash is growing. Therefore, a decline in the stock market may have many obvious benefits for us. :

First, it helps to reduce the price of our overall acquisition of enterprises;

Second, the depressed stock market makes it easier for our insurance companies to buy stocks of outstanding companies at attractive low prices, including continuing to increase their holdings on the basis of the shares we already own;
Third, those great companies that we have bought stock in, such as Coca-Cola and Wells Fargo, will continue to buy back their own stock, which means that their companies and us shareholders will be rewarded because they buy back at a cheaper price. benefit.

Overall, Berkshire and its long-term shareholders benefit more from falling stock market prices, just as a foodie gets more from falling food prices.Therefore, when the market plummets, investors should have this kind of glutton mentality, neither panic nor depression.For Berkshire, the decline in the market has been major positive news. "

Surprisingly, however, these once-sensational events have never caused Ben Graham's investment principles to show a slight flaw, nor have they ever made a mistake in buying good companies at reasonable prices.Imagine how expensive it would be for investors to delay or change the allocation of funds because of these unexplained fears.

In fact, investors usually find the best buying opportunities when some major macro events lead to the peak of market pessimism.Fear is the enemy of the fanatic, but the friend of the fundamental analyst.In the next 30 years, there will be a series of shocking events, we will not try to predict it or profit from it, if we can find good companies as in the past, then in the long run, External accidents have limited influence on us.Only when the stock market is extremely depressed and the entire economic circle is generally pessimistic, investment opportunities to obtain super investment returns will appear.

Looking back at all the investment businesses of Berkshire during the Great Depression of the US stock market from 1973 to 1974, people will find that Buffett is buying stocks crazily.He seized the opportunity of buying stocks with a large margin of safety formed by the excessive downturn in the market, and made huge profits.

他所持有证券之一的联合出版公司，在1973年内赢利率增长了40%，但是该企业一度曾以10美元/股上市的股票，在一个月内持续下跌到7.5美元/股，已经低于5倍市盈率了。在人们开始怀疑市场或企业是否有任何失误之处时，巴菲特却坚信自己比别人更了解该企业的内在价值。1974年1月8日那天，他又买进了联合出版公司股票，11日、16日再次买进。在2月13日、15日、19日、20日、21日、22日连续多次进入市场买进。一年中有107天他都在不断地买进。

As an investor, buying dips is a sound strategy, especially when the decline is caused by a stock market correction.Of course, the stock market may continue to correct and enter a bear market, but this usually does not happen.Most corrections quickly cease and the market recovers.Market-induced fluctuations in individual stock prices present opportunities for both speculators and investors.These opportunities usually don't last long, so investors should analyze their targets, pick stocks, and act quickly.

Investment motto:

Most people are interested in stocks that everyone else is interested in, but when no one is interested in stocks, that's when you should be interested in stocks. The more popular stocks are, the harder it is to make money.

(End of this chapter)