Learn to invest with Buffett

Chapter 73

Chapter 12 Section 4 Data analysis is not a panacea

In the same way, suppose you live in a very patriarchal society, and every family in the United States happens to be led by the father. After 20 days, you'll find 215 winners from 21.5 families.A few naive analysts might therefore think that there is a highly genetic component in successfully guessing the outcome of the steel plate toss.Of course, this doesn't really mean anything, since instead of 215 individual winners you have 21.5 randomly distributed families.

--Warren Buffett
Buffett believes that it is very important for investors to carefully analyze the relevant data of enterprises, but sometimes it is necessary to avoid falling into the swamp of analysis.

Data plays an important role in human life.Without mathematically precise data, life would be blurred.If you don’t first use weather models to analyze the previous weather change data, you can’t predict future weather changes; if you don’t formulate cola according to the formula of cola, you can’t make delicious cola; if you don’t formulate rules for shooting competitions, you can’t It is impossible to determine who is the champion.

Buffett believes that stock investment is essentially a risky game.If an investor wants to reduce the risk of investment, he needs the help of data.Bernstein once said: "In the absence of opportunity and possibility, the only way to deal with risk is to turn to God and luck. Without the support of data, taking risks is completely a reckless behavior."

If there is no data, investors can't understand the company's operating conditions at all, and investors' investment behavior is full of randomness like throwing dice, but investors will not invest so blindly.Investors usually use the data provided by the company to understand the company's operating performance, estimate the company's intrinsic value, compare it with the stock price, calculate the possible benefits, and then make investment after comprehensively considering the analyzed data.The advantage of data analysis is to subtract those uncertain factors as much as possible.For example, by analyzing the data of a certain material, it is found that whenever the interest rate is lowered by 0.1%, the sales of a certain company will increase by 3%, then we have obtained some favorable information for investment.With this information, you have a better chance of finding good investment opportunities and predicting future returns than those who lack this information.

Data analysis has a role, but many people are too addicted to the swamp of analysis.In investment, it is often seen that some people study the price trend of a certain stock in the past 5 or 10 years, carefully analyze its subtle changes in trading volume and daily changes, and try to infer from the stock price changes. A stock price model that predicts your own stock returns.

But Buffett believes that data analysis is not a panacea.It can eliminate some uncertain factors, but it cannot summarize the model of stock investment.At present, there are many stock selection methods designed in the market, but most of them are difficult to put into practice and have been proved to be useless.Buffett realized the limitation of materials early on, so he didn't look at the various stock selection materials made by stock analysts at all, and he didn't install a stock terminal in the computer to check stock prices every day, and he didn't want to waste time analyzing stock prices. Price trend.Perhaps it was the fact that he did not use any statistical analysis packages and did not analyze stock price movements that made his operation more successful.

Investment motto:

We should learn from Buffett, rationally use the existing data, and extract useful information for investors, instead of relying entirely on data to make investment decisions.

(End of this chapter)