Learn to invest with Buffett

Chapter 49

Chapter 8 Selling stocks, not good companies need to be held for a long time
Chapter 8 Section 1 Most of the stocks in the stock market are sold when they rise
We need to emphasize that we are not selling shares just because they have appreciated in value, or because we have held them for a long time.

--Warren Buffett
The above statement by Buffett reminds investors that during the heyday of the stock market, they must see the state of the market clearly and not be dazzled by the strong speculative atmosphere in the market. At the same time as the joy of coming, the risk of the market has become higher and higher at this time.When the market expands to a certain state and a bubble appears, it is not far from the time when the bubble bursts.Once the stock market situation turns sharply, no one can predict how far it will fall, and it will take some time for the stock value to adjust again, and there are potential risks.The relatively not very good stocks you hold in your hands will not reflect their value at all. It is better to sell them than to hold them in your hands.

In 1969, as the U.S. stock market soared in the 20s, Buffett dissolved the partnership.Entering 60, Berkshire's insurance company had a securities portfolio worth 1972 million, of which only 1 million were invested in stocks.

In 1987, the Dow Jones index was an eye-opening 2258 points, which was the heyday of the bull market. Buffett believed that the stock market was a dangerous area and had quietly sold most stocks.

In his 2005 letter to shareholders, Buffett blamed himself: "Since our initial purchase of these stocks, the valuation of these companies has increased more than their earnings have increased as the price-to-earnings ratio has increased. Sometimes this divergence is quite large. During the dot-com bubble, market cap growth far outpaced business growth. During the bubble I marveled at dizzying prices but didn't act on them. Even though I claimed we had some stocks that were worth more than they were worth, Underestimated the extent of the overvaluation - I was just talking about it when it was time to act."

During the heyday of a bull market, most of the stock prices on the stock market are rising, and at this time, stock prices are getting farther and farther away from their value.Although this state is in line with the psychology of investors who want to make profits.However, the overall level of the stock market will deviate farther and farther away from the intrinsic value.Such a stock market situation makes it easy for people to fail to recognize the true value of the company's stocks. The faster the stock rises, the more likely it is a variety that everyone is not familiar with.The stock market will fall shortly, and return to value again.During this period, everyone will have the psychology of following suit.The blindness and profit-seeking nature of the market will become more severe, and the formation of the overall bull market of stocks will be inevitable.Once the stock market cools down, the entire rapidly cooling market state will have a huge impact on the stock price.Stock prices of great companies are sometimes not immune.In this way, the interests of investors will inevitably be affected. In order to avoid excessive losses and impacts, it is reasonable to sell some stocks.When the stock market and individual stocks rise again and again, potential risks are also brewing.

Investment motto:

Rational investors must keep a certain distance from the market.Because the market is unpredictable, it will be very risky to invest by relying on the stock price changes in the market.It is absolutely impossible to follow others' opinions, especially when the market is in its heyday and the stock market has bubbles, investors must invest more rationally.Often the decision to sell at this time is more rational than the decision to buy.Otherwise, when you find that what you buy is an uncertain time bomb with risks at any time, the investor's property will already be lost.

(End of this chapter)