Learn to invest with Buffett

Chapter 47

Chapter 7 Section 4 Buying “Discounted” Stocks
Even though we have never tried to predict the movement of the stock market, we still try to assess the reasonable price of the stock. At last year's shareholder meeting, the Dow was about 7071 points at that time, and the interest rate on long-term bonds was 6.89%. Charlie and I once said that if the first one can be met, the interest rate will remain unchanged or continue to decline. Second, American companies can continue to maintain the existing high return on equity of shareholders.These two conditions mean that the stock market is not overvalued.

However, judging from the current situation, interest rates are indeed in the process of falling again, which can be regarded as meeting one of the conditions, but on the other hand, the return on equity of shareholders is still maintained at a high level.In other words, if this situation continues, and interest rates can maintain the status quo, there is no reason to believe that the stock market is in an overvalued state; The current level is also difficult to achieve.

--Warren Buffett
Buffett's idea is that when investing in a certain stock, once the price rises sharply, Buffett will lose interest in any investment.Stockbrokers always confuse the question of what to buy with what price to buy into a confusing problem, focusing investors' attention on the question of what to buy and completely ignoring the question of price.Like a jewelry or art salesman who puts the aesthetics of form before matters of function, a Wall Street broker sees a business's financials as having an aesthetic quality and successfully separates price from substance.

In 1982, when Buffett observed several large mergers and acquisitions that took place in that year, his reaction was not jealousy, but he was very grateful that he was not one of them.Because in these mergers and acquisitions, the impulsiveness of the management authorities defeated reason, and the pursuit of the stimulating process made the pursuers very blind. One of the most famous French mathematicians and philosophers Blaise Pascal said: "All misfortunes are attributed to the inability of everyone to stay in one room quietly." In 1981, the chairman of many companies had left that room several times, and almost became the protagonist in that farce.

Looking back, investors often try to buy shares that have previously invested in many companies with large sums of money, but cannot execute due to many uncontrollable factors. If it is really successful, then the transaction at that time must be exhausted Investors spend all their time and energy, but they may not necessarily get a good return.If investors had charted the company's development in the report last year, they would have found a two-page blank spread depicting the deal that fell through.

Typically, investment brokers bid up the prices of stocks as much as possible to profit from them, so there are few bargains available to the average investor.The issued stocks are also priced at the highest possible price, so that the issuing company can obtain the most money from the issuance of stocks, and the investing bank can also receive the most commissions.The stockbrokers who call investors are commission brokers, and like all brokers, they are only interested in items that will fetch the highest price.

They will never call and tell you that such-and-such is a great company, but its price is too high.In fact, as we all know, they may really think it's worth buying XY stock at any price, but if we get in the game, then we'd be as dumb as they are. "It's worth being cautious that what stockbrokers are trying to sell you is the prospect of rising stock prices. So you should invest from a business point of view, as Warren Buffett did. The question to ask repeatedly is not the rising stock price but the Can the investment industry make money and how much? Once these figures are determined, the profit that the stock price can give can be calculated.

Investment motto:

Investors can determine the lows and highs of the stock market only when reviewing historical data.But the facts seem to show that buying stocks during a decline in the market is much more beneficial than buying stocks during a rise.Investors don't have to buy exactly the lowest point of the stock price. What's interesting is that these conclusions can be obtained in various market environments.Whether it is a bull market or a bear market, there will be many fleeting opportunities for short-term trading in the stock market that can allow investors to expand their profits, and investors should make full use of these opportunities.

(End of this chapter)