Learn to invest with Buffett

Chapter 77

Chapter 13 Section 3 Choose a Prudent Investment Strategy

From what we've seen, there are only two courses that investment learners need to delve into: how to value a business and how to look at market prices.
--Warren Buffett
The first and foremost thing about Buffett's investment philosophy is to remember the stock market crash.That said, invest with a sound strategy to protect your money from loss, and always remember that.Buffett's prudent investment strategy of never doing "unsure things" has enabled Buffett to avoid stock market crashes time and time again, and has also allowed his capital to appreciate rapidly when opportunities come.

However, many investors invest rashly without knowing the risks or lacking sufficient risk control ability, or lose the awareness of risk control due to excessive greed, and do not choose a stable investment strategy.

"Even in a bull market, investors should reduce systemic risk through prudent investment." Regarding the recent sharp fluctuations in the stock market, relevant experts believe that it is very important for new investors, especially those new investors who lack a deep understanding of market risks, to choose a prudent investment strategy. important.The so-called stock market master in the following story is because he did not fully understand the risks of the stock market and did not choose a prudent investment strategy, and eventually lost all his money.

In 1996, Lao Li and his classmate Lao Wang came to Shenzhen together, and they planned their future together.Lao Li has always been a down-to-earth person. At that time, Lao Li relied on his own diligence to enter a private enterprise. Although the salary was not high, he did a good job. Started the business of speculating in stocks. The Chinese stock market in 1996 was a big bull market. Most people who speculated in stocks made small profits, and Lao Wang was no exception.He is a cunning person. Through lobbying, he raised a sum of money and acted as an agent for others to speculate in stocks. Soon, he made a lot of money.In September, he bought 25000 shares of Shenzhen Vanke at 7.45 yuan. Luckily, the price went up after he bought it. Lao Wang was overjoyed every day, so he simply quit his job and went to the securities company all day long. At the beginning of December 1996, he again dumped the stock at around 12 yuan by a strange coincidence, making a net profit of 15+.

However, in 1998, earth-shaking changes took place in the stock market. Lao Wang's stocks were severely locked up, and even the debt collectors chased him so much that he dared not go back to the dormitory. In 2000, although he made some more money, he could not escape the fate of the Chinese stock market crash in 2001. He had already lost so much that he could not even guarantee his board and lodging. At this time, Lao Li had already switched to a foreign-funded enterprise Sales Director of South China.
The old Wang in the story doubled his funds in just three months from September to December 1996.If calculated according to this rate of return on funds, his annual rate of return on funds is 9%, which is indeed a master.But this expert did not earn as much money as Buffett. As a result, not only did he return the money he earned from the stock market to the stock market, but he also lost his capital and eventually went bankrupt.

The reason why Lao Wang lost money has a lot to do with his lack of risk awareness and failure to choose a prudent investment strategy.Therefore, in order to achieve capital growth in a highly volatile market like the Chinese stock market, it is necessary to go through in-depth research, follow the objective laws of stock market development, and pursue value-added on a stable basis.

The volatility of China's stock market is higher than that of the world's major stock markets, even higher than that of other emerging markets.According to statistics, since the development of the stock market in 1991, until March 2003, the standard deviation of the monthly rate of return of the Shanghai Composite Index was 3%.

In the nearly 1802 years from 1975 to 200, the standard deviation of the monthly returns of the New York Stock Exchange was quite stable, ranging from 1.5% to 8.8%, most of which were between 3.5% and 5.3%; from 1976 to 1991 During the year, in the United States, Europe, Japan, South Korea, Malaysia, Thailand, India, Mexico, Argentina, Chile, Brazil and other countries and regions, the standard deviation of monthly stock returns was 15% to 20% except for Argentina and Chile. All countries are lower than 15%, much lower than China's 22%.

Investment motto:

Investing is like a long-distance race, you don't lead overnight.In long-distance running, more "endurance" is used. Blindly pursuing "explosive power" will inevitably waste "physical energy" excessively, and eventually all previous efforts will be wasted.Similarly, those who can survive in the securities market must be those investors who pay attention to prudence.

(End of this chapter)