Small Group Meeting Q&A (6)

Small Group Meeting Q&A (6). Written on August 24, 2018

Question six: Teacher, we had a very bad investment experience in the past. In 2000, we bought Cisco and still have not recovered our cost. So asking us to hold for the long term is very difficult.

Answer:

When you buy an individual stock, besides knowing its business model, you also need to know why the company is a good company. When you understand the conditions and unique business model that make it a good growth company, then when the company's nature or external environment changes, you should also understand it.

If you cannot judge when a company has started to turn bad, then you probably do not have the ability to identify a good company either.

So I suggest that everyone put most of their funds into the indexes SPY and QQQ. Indexes are investments that can be held long term and will never turn bad.

If you want to invest in individual stocks, you can choose companies you want to buy from the seven stocks we recommend: AAPL, FB, SQ, AMZN, PYPL, BABA, and NVDA.

Buffett's partner Munger once said that if you buy 10 companies in your lifetime, as long as three of them succeed, you will become very wealthy. I have calculated that if you buy one good company correctly, it can grow tenfold in 10 years, one hundredfold in 20 years, and one thousandfold in 30 years. If seven companies all go bankrupt and only three succeed, then after 30 years your assets will grow 300 times, for an annualized return of 20%.

So investing does not need to be 100% successful. In investing, as long as you buy the index and hold for the long term, you can have an annualized return above 10%. If you choose individual stocks, as long as each stock does not exceed 5% to 10% of your total assets and you hold for the long term, you will become very wealthy.