Learn to invest with Buffett

Chapter 81

Chapter 14 Psychology, investing is not only based on IQ

Chapter 14 Section 1 The biggest enemy in the stock market is yourself

Since investors are bounded rationality, they are often affected by various psychological factors in their investment decision-making process, resulting in a large number of cognitive and behavioral deviations.In layman's terms, smart people with normal intelligence and good education often do stupid things.

--Warren Buffett
Buffett believes that in any investment, IQ is not the most important thing for investors to achieve long-term investment success, but emotional intelligence is more important.Therefore, in Buffett's view, the biggest enemy in the stock market is himself.Investors should not only resolutely do what they think is right, but also keep a clear head when others are crazy, and don't fall into "collective madness".

Graham also believes that the biggest enemy of investors is not the stock market, but themselves.Even if investors have the necessary financial and accounting skills to invest in the stock market, if they cannot control their emotional changes in a volatile market, it will be difficult to make profits from investment.Buffett explained Graham's proposition in this way. He believes: "First, treat investing in stocks as a business, which will make you have a very different investment perspective from investors in other markets; First, you must have the concept of safe profit margins, because it will bring you a competitive advantage; third, you must face the stock market with the attitude of a real investor. If you have the investment mentality advocated by Graham, you are already 99% ahead It’s a big advantage for you than other investors.”

In stock investment, thousands of stockholders yearn to find the "tricks for stock trading", "magic weapon for winning", and "secrets for following the market", so as to be invincible in the stock market, make great achievements, and get rich quickly.Many investors often encounter such a situation. When faced with the same fundamental information, they will see good and see bad; when faced with the same technical chart, different people will see different opinions;Buffett believes that any investment theory or operation strategy must be controlled by the human mind.Therefore, he pointed out that any kind of investment theory or operation method should finally be judged and made in combination with the specific situation at that time.

I believe that many investors who are new to the stock market have such embarrassment. They fall when they buy, and rise when they sell, as if the dealer is short of his own thousands (hundreds) of shares.

Even for investors with some experience, if you count the time you hold a stock, you will be surprised to find that the longest time is held in the lock-in and capital preservation (small profit) stages. Once the stock has a 20% to 30% profit The increase is like a hot potato, ready to be thrown at any time.It turned out that the days of making money were so difficult.

Or some investors are full of dark horses, and after a few days of buying, they have a "new love".Often the result is double-sided slaps, let go continue to rise, buy like a dead pig, and then change... The reason is nothing more than the weakness of human nature.

How to make money in stocks?It is nothing more than "buy low and sell high".But how to grasp the timing of buying and selling depends on the individual's mentality.

If you want to defeat yourself and win in the stock market, you must do the following homework when trading in stocks:
1. Stock trading depends on the general trend first
Don't believe that you are a master who will always outperform the market, and you will always fail if you go against the general trend.It's as stupid as if you bought stocks from 2001 to the summer of 2005 and held them for a long time, and in 2006 you made a small profit and ran away.

2. Choose the trading method that suits you

If you are not a professional investor, it is recommended that retail investors do not frequently do short-term, and may wish to learn from Buffett's "long-term cover".You can choose the investment method according to your own personality preference: follow the hot spots/digging out the unpopular, medium and long-term holding/band operation, target position operation/random movement...

3. Do your research
Don't rush to buy just based on a word of news or someone else's recommendation.Now the information is very developed, you can get a lot of information through the Internet, as long as you are willing to work hard.Don't just get information from securities media, there are valuable news waiting for you to discover in many mass media and industry media.Don't look at the recommendations of stock critics, but look at competitors' comments on him and industry trends.Suggested things to do before buying stocks: Fundamentals + technical preliminary selection - Include self-selected stocks - Observation for at least 1 month - Formulate a buying plan - Wait for the opportunity.

4. Set a reasonable profit target

It should be enough to get income several times higher than the bank interest rate.Of course, this does not mean being conservative, but when you have far completed the 20% to 30% annual return target, you will be more peaceful to buy new stocks.There is endless money in the stock market, and we can only take away part of it that belongs to us.Their level is high, and it has doubled several times a year. Just appreciate it and don't have a mentality of comparison.You know, often "inadvertently planting willows and willows into shade".

It is not pleasant to see other people's stocks go up and down, while your own stocks are struggling. But first ask yourself why you bought it in the first place, and whether the current environment has changed.If you do make a mistake in your judgment, be brave enough to admit it and withdraw immediately.But don't rush to get involved in the next stock after you come out, first reflect on the lessons, balance your mind, and then choose a new target according to your previous tracking and observation list.

If you have determined the midline target, don't care about the daily real-time rise and fall.Look at the weekly and time-sharing charts more, and don't pay too much attention to the daily line.I often think about how I would trade if I were the dealer, which can help you understand the trend of the stock.

Investment motto:

Don't look at stocks every day, take a proper vacation for yourself, and adjust your mood is very important.Even if the market is not good, there are still many interesting things in life to experience.If one day, you find that your emotions will no longer fluctuate with the rise and fall of stocks, then you will really defeat yourself in the stock market.

(End of this chapter)