[Investment Philosophy (1)] - [Value] is the core of investment

[Investment Philosophy (1)] - [Value] is the core of investment

Buffett, who has been successful in investing, has valued [value] rather than [price] throughout his life.

When a one-hundred-dollar bill is traded for fifty dollars in the market, it is a hundred-dollar dollar bill that is traded for fifty dollars. People who buy it for fifty dollars are buying high value at a low price. This is how to earn more than remuneration in the market.

When a hundred-dollar bill bought for fifty yuan is feared that the market price will fall to thirty yuan, speculators who think they know the market well will use the technical reason of stop loss to sell a hundred-dollar bill for thirty yuan (of course, over time, investors who do not understand value and only recognize price will end up with losses). [Value investors] will not be sad because the previous purchase price of fifty yuan has dropped to thirty yuan, but will be happier to buy another hundred dollar bill at thirty yuan.

When the market is sane, the market will trade US$100 worth of US dollars at a price of about 100 yuan. At this time, speculators will lose handling fees and short-term trading losses due to frequent operations. Value investors hold stable shares and are not affected by market prices. Their lives are not affected by the market. They drink tea, chat, and enjoy life while waiting for the market to go crazy.

When the one hundred dollar bill in hand rises to three hundred dollars due to the greed of the market, speculators will buy it for three hundred dollars in the hope that they will make a profit by selling the one hundred dollar bill for four hundred dollars. Value investors know very well that the value of the dollar in their hands is only one hundred dollars, so they will happily sell the one hundred dollar bill for three hundred dollars.

Therefore, the key to making investment profits is that value is not the market price. Measuring value is the core of investment. Investors must know how to judge value.

General value investment (I recommend index funds), compares the possible future cash flow combinations with the total cash flow of risk-free bonds to arrive at a reasonable value (if it is a value stock, in addition to cash flow, the industry prospects and the company's future are secondary conditions that must be considered).

For general growth investments, industry prospects and the company's future are the secondary conditions that must be considered, and the total dividend cash flow is the secondary condition.

Finally, most of the time the market is rational (price and value are close to stable holdings), sometimes the market is overly optimistic and crazy (price is much higher than value, sell holding), and sometimes the market is extremely fearful (price is far below value, buy and hold).

So real value investors wait for a long time before market madness and fear come, and investing becomes interesting but boring.

Date of writing: June 12, 2016