Learn to invest with Buffett

Chapter 7

Chapter 1 Section 6 Adhere to value investing and be the champion of long-distance running in the stock market

As long as it is permitted by law, we will hold the shares of The Washington Post indefinitely, because we have great expectations for the continuous and stable growth of the company's value, and we will also know that the company's management can fully Oriented in the interests of shareholders.But the company's market value has now grown to $18 billion, and it is difficult to maintain growth at the original market value of $1 million.

--Warren Buffett
Buffett said that in fact, the value investment strategy is not beyond the understanding of any investor.When it comes to value investing, everyone knows that value investing should be done, but value investing is expensive in the word "persistence". Only persistence can be the long-distance running champion in the stock market.

A basic principle of value investing is to see the actual value through the market price.When you buy stock, you don't just buy a stock, you buy a part of a business.The intrinsic value of a business often differs significantly from the stock price indicated by the often volatile stock market.If the price of buying a stock is significantly higher than its intrinsic value, you will suffer losses; on the contrary, if it is lower than its intrinsic value, the chances of making money during the transaction are greater, and the risk of funds being locked up for a long time is relatively small.The basic bet is that the market value will eventually match the intrinsic value.

When investors buy stocks, they should analyze whether the stock is a value investment or a hot investment.If it is a value investment, you must hold it for a long time, and avoid frequent stock exchanges; if it is a hot individual stock, you must pay close attention to the trend of the market and individual stocks, and do not take the last stick.For retail investors, if they do not have professional knowledge and the ability to judge the situation, it is best to stick to long-term investment, and frequently change hot stocks and easily fall into the abyss.

A large number of empirical studies on the stock market have shown that although the stock market will fluctuate violently in the short term, it will return to value in the long run.The empirical studies of well-known researchers such as Siegel and Wella all support this conclusion: there may be a positive correlation between stock returns in the short term, such as a week or a month, but for a longer period of time, stock returns show a positive correlation. Negative serial correlation, say over two years or longer.To put it simply, after two or more years, the stocks that were originally rising will reverse and fall, while the stocks that were originally falling will rise.

The following quotes two well-known research results on the 200-year and 100-year volatility of the US stock market for illustration:
Siegel's research shows that during the nearly 1802 years from 1997 to 200, the return on stock investment deviated from the long-term average in many cases, but the actual average annual return on investment in long-term stocks was very stable at about 7%.

巴菲特以100年详细的历史数据解释说明了为什么1899～1998年的100年间美国股市走势经常与GNP走势完全相背离。他认为美国股市20年整体平均实际投资收益率约为6%～7%左右，但短期投资收益率会在利率、预测投资报酬率、心理因素的综合作用而不断波动。

As a value investor, after locking in the target stocks and intervening, the operation to do is to hold firmly, and hold firmly instead of half-heartedly when the target value is not reached.Everyone comes to this market for capital appreciation. If there is a clear evaluation of the company's value, and the company's business continues to grow, so as to continue to develop, what you have to do is to buy at a margin of safety and hold firmly.It is such a simple strategy, but in this world, the simpler is the truth.Frequent stock exchange is a taboo in the bull market. There are many investors in the stock market who are always keen to chase hot spots and frequently exchange shares.However, short-term arbitrage stocks are not something ordinary people can grasp the current situation. After all, the stock market is ever-changing. When you frequently exchange shares, if you fall behind the hot spots and fall into the trap of hot spots, you will only fall black and blue.In fact, frequent exchange of shares in a bull market is a big taboo. A bull market indicates that the market has entered a rising stage. Although there will be some intraday diving movements frequently during the rising process, it can be regarded as a kind of intraday compression. The tendency of speed, you should strengthen your confidence in holding shares, waiting for the rise is the best strategy, and you cannot exchange shares frequently.

my country's securities market has entered the era of full circulation, and the overall investment value brought about by the listing of high-quality enterprises will increase, and my country's securities market will undergo fundamental changes.Therefore, actively following market transformation and learning the value investment philosophy of mature capital markets should undoubtedly be advocated for a long time.Only by adhering to the concept of value investment and abandoning blind and irrational speculation can the stock market rise longer and the capital market achieve sustainable and healthy development.

Investment motto:

Facts have proved that whether in a down market or a market full of bubbles, value investing is fundamental to the sustainable development of the market.Speculation can promote the activity of the market, but it cannot maintain the continuous, healthy and stable development of the market.

(End of this chapter)