Learn to invest with Buffett

Chapter 98

No.16 Chapter 3 Do not speculate but invest
Speculation is a waste of time and energy without any reliable chance of winning.Perhaps it is more appropriate to choose long-term investment.If you have already chosen a company for long-term investment, you don't have to be fooled by short-term price fluctuations. As long as you persist for a while, you will find that your choice is wise.

--Warren Buffett
In 1998, Buffett said in a speech at the University of Florida Business School: "What we want to see is that when you buy a company, you will be happy to hold the company forever. In the same way, when investors buy Berkshire shares I want them to hold it for life. I don’t want to say it’s the only way to buy stock, but I hope that’s the kind of people that join Berkshire.”

Stock markets are generally highly liquid.Many investors buy and sell stocks based on how much they rise or fall.But in Buffett's view, stocks should not be liquid for a long time.Fortunately for Buffett, Berkshire's stock is probably the least liquid in the United States. Only about 1% of people will sell their stocks every year. It is hard to say whether they have been influenced by Buffett.Buffett is known the world over for long-term investing.As long as he believes that a company has strong value-added capabilities, he will make long-term investments. Even if the value-added capabilities of these companies are not reflected in the short term, it will not affect his long-term holding attitude.

Generally speaking, the investment in the stock market refers to the long-term investment that is bought and held for a long time.Investors value the intrinsic value of a business.Usually, long-term investors will choose companies with strong development prospects in the next 10 or 20 years, buy them when their stock prices are undervalued by the stock market for some reason, and then hold them for a long time.Long-term investors generally don't care much about short-term stock price fluctuations, and care more about the future value of stocks.Buffett is a big fan of long-term investing.Coca-Cola, Gillette, Washington Post and other stocks that Buffett mainly invests in have been held since they were bought.Buffett has said that he wants to grow old with his stock holdings.

In fact, speculation is also investment. It refers to the behavior of using asymmetric information and timing to make profits in market transactions.Speculation focuses primarily on price changes with little regard to the actual value of the traded instrument.Most of the methods are buying low and selling high, fast in and fast out.

Buffett believes that speculation is not advisable.Speculation is too risky for individual investors.Since speculation emphasizes buying low and selling high, it is easy for investors to waste time and energy analyzing the economic situation and seeing the daily rise and fall of stocks.The more time an investor spends, the easier it is to get caught up in the clutter of thoughts and get stuck.But in Buffett's view, the stock market is just a voting machine manipulated by investors in the short term, and investors' investment behavior is irrational, so it is impossible to predict.In the long run, the stock market is a fair balance. If the company purchased by investors has potential, the value of the company will inevitably be reflected in the stock price in the long run.Therefore, Buffett believes that the best way is to buy at a price lower than the intrinsic value of the company, and at the same time, he is convinced that the company has the most honest and capable management.Then, just hold on to those stocks forever.

Let's also take the example of Coca-Cola stock.During these decades, Coca-Cola stock price has fluctuated daily.If the stock price of Coca-Cola is $20 today, you think it will rise tomorrow, so you buy a lot of stocks, but the stock price falls instead the next day.If you are doing short-term speculation, then you will lose money.No one can predict short-term fluctuations in stock prices.If you invest in Coca-Cola stock for a long time, you must have made a lot of money.Because from the end of 1987 to August 2009, 8, Coca-Cola rose from $31 to $3.21.

Investment focuses on stable returns in the long run, while speculation is only a short-term technical arbitrage of risk factors.Investment pursues a "win-win" development path, while speculation creates more economic uncertainties while taking advantage of risks.

Buffett once summed up his "way to make money" in the stock market as: "When I invest in stocks, I regard myself as a business analyst, not a market analyst, securities analyst or macroeconomist." Buffett From penniless to wealthy, he has always been looking for undervalued stocks in the capital market from beginning to end, and he has always dismissed the use of technical analysis and insider information for speculation. This can be called too selfish. His investment philosophy has allowed him to make long-term profits.

Investing is the essence of getting rich, not speculation.Buffett's success in the stock market relies on his thorough analysis of fundamentals rather than his clever use of news.Only when investors understand this, will they not only memorize "long-term holdings" superficially. After being locked up, they simply learn from Buffett and become long-term investors.This is a serious misunderstanding.Without the premise of investment, or if the premise is wrong, the loss of blind long-term holdings may be even more painful.

Investment motto:

Buffett said: "Only when the tide recedes, you will know who has been swimming." After the big waves wash away the sand, it is the real moment when the market recognizes the king.Investment is not speculation, which is the way to success in mature markets.For an investor, when speculation becomes a habit, that is when the investment risk is the greatest.

(End of this chapter)