Learn to invest with Buffett

Chapter 82

Chapter 14 Section 2 Buffett Investment Psychology

A lot of people have a higher IQ than me, and a lot of people work longer and harder than me, but I do things more rationally.

--Warren Buffett
In investment practice, many investors pay too much attention to the market and often overreact to market changes.In fact, people are not unprepared for the decline of the stock market. The question is how many people can calm down while seeing the funds on their books decrease.

Buffett believes that one of the qualities necessary for a successful investor is to be prepared financially and psychologically for the inevitable ups and downs in the market.You must not only accept any possible changes in the market rationally, but also maintain calm and independent judgment, so that you can avoid being at a loss in the face of the situation.In fact, if you insist that your original decision was correct, you can ignore any changes in the market and maintain a calm attitude towards market declines. As Graham pointed out: "A real Investors are seldom forced to sell their shares, and they are free to ignore prevailing market conditions at any time." However, very few investors are able to do this.In reality, people often rush to make a decision as soon as they hear the wind and grass, so some people say that in the investment market, 99% of people suffer from "ADHD".

If you have some cash to spare right now, you're ready to use it to buy stocks.At the same time, you also know in your heart that the overheating of the stock market has been going on for some time, and the prices of many stocks have increased greatly compared to before.You know very well in your heart that it is not the best time to buy at this time, and the stocks you are looking at will definitely face adjustments in the future, and it will be much safer to buy at that time.You may have waited for two or three days, up to a week, and the price of that stock still hasn't dropped, so you can't wait, thinking: "Buy it, maybe it will go up for a few weeks, don't miss this opportunity, at worst, it won't be too long." The sky is sold, and you can buy it when it falls." Your thinking is indeed beautiful, but it is also too naive, and it can even be said to be too ignorant.Most of the result of this is that you buy when the stock rises and sell when it falls, just like countless investors who have the same dream as you, always doing stupid things with smart ideas.

As a rational investor, you should be able to remain calm about any changes in the market.If investors face the market's unreasonable decline (we have to admit that this happens from time to time), they always feel panicked, at a loss, and even abandon their stocks and run away.Or maybe you're not doing anything, but you're feeling anxious from time to time, feeling like you're about to become a pauper on the street.This fragile psychology of investors often turns your original advantages into disadvantages, and you start to feel less confident in the decisions you used to be very confident in. You always pay attention to the actions and opinions of others, for fear of missing something.This kind of anxiety is very harmful to investors. Not only can we not feel the joy of controlling money from investment, but even our perception of life and happiness will be damaged as a result.Compared with those who are highly sensitive to market information, those who, once they choose a stock to invest in, are ready to hold it for a long time are much more at ease. to suffer from the misery of another's judgment.

People's herd mentality is often very prominent in the investment field, so investors rush to buy or sell a certain stock from time to time, but what will be the result of doing so?You will always be behind others, and the gains you hope for will come to naught again and again.This may be the shortcoming that all investors are most likely to make and the most difficult to correct.

Therefore, Buffett warned investors not to run away because of other people's wrong judgments, and not to lose the ability to make clear judgments at any time, and at the same time ensure that they are not affected by other people's emotions.No matter how the market changes, you only need to grasp the most fundamental thing, that is, maintain a clear and objective understanding of the company. As for other behaviors and emotions from the market and others, you can completely ignore them.

Investment motto:

As Buffett said: "Only by trying to be cautious when others are greedy, can you move forward bravely when others are cautious." All the factors of investment behavioral psychology gather together and then reflect on one person, like a big A magnet attracts all the iron substances around it to itself, it depends on the person's tolerance for risk.The stock market is a place dominated by human reason. To be a successful investor does not require a superhuman IQ.His success is largely due to his excellent personal qualities: self-discipline, patience, wisdom and decisiveness.Every successful investor needs to develop a capacity for self-discipline.The stock market is constantly fluctuating, and if you lack self-discipline, you will make irrational moves.

(End of this chapter)