Chapter 49 [Time is the friend of value investors]

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[James Origin and Today] Chapter 49 - Time is the friend of value investors (07/13/2023)

Next, Buffett's investment rules, the first is not to lose money, the second is not to lose money, and the third is to remember the first two.

This means that when you buy again, you must buy the right asset, and when considering investment targets, you must be careful, careful, and careful again!

If you have the same valuation and evaluation skills as Buffett, you can invest in individual stocks like Buffett, buy when the price is much lower than the value, and sell when the value is much higher than the price.

Most people do not have the ability to evaluate the value of individual stocks, so they cannot determine whether the investment target is good or bad, and they cannot avoid long-term losses. They can only invest in index funds. This is also the investment target recommended by Buffett, so investing in index funds is not wrong. (Although Buffett only recommends the S&P 500 Index, he also mentioned broad index funds).

Furthermore, because I have no ability to evaluate the index value and cannot know when is the best time to buy, I can only use long-term investment of buying at any time and not selling, and let the value naturally increase over time to exceed the price you purchased.

Therefore, the average investor must first admit that he or she does not have the ability to select stocks, and the second is to admit that he or she cannot accurately evaluate the value model and firmly believe it. This is the most difficult thing, and it is also the reason why ordinary people cannot do it.

Because when the value calculated by your valuation model is higher than the market price, you buy, but the market continues to fall, you will suspect that the value valuation model may be wrong. When you suspect that your value valuation model is wrong, you will sell your stock when the stock price drops (the reason is that after you readjust the valuation, the price becomes higher than the value).

Even though your value assessment model may be correct, human nature changes the value assessment due to the drop in stock prices. What's even worse is that you receive external information without thinking about whether your own model is right or wrong, and under the condition of market decline and human fear, you drive down the stock, making it impossible for you to stick to value investing.

This is just like holding a worthless stock, but you firmly believe that your value model is correct. As a result, you hold a worthless stock and continue to lose money. This means that the investment will not be successful.

Most investors do not have the ability to select stocks and evaluate values. They usually use the level of stock prices to feel whether their value assessment model is correct. When the market goes up when you buy, you think your value assessment model is correct. When the market falls when you buy, you begin to suspect that your value assessment model is wrong. In addition, after receiving a lot of market information, you begin to doubt all things and all, and you cannot adhere to the value model of long-term investment.

When the market falls, they suspect that their value assessment model is wrong. Some people will even change the value assessment model to suit their own tastes, thus completely losing the meaning of the value assessment model. This is why some people understand the value assessment model, but their investments still fail. What's more, investors who don't understand the value assessment model at all are walking blind in the market.

Just because of human nature, you may suspect that your value assessment model is wrong, or you may think that the market is wrong, but firmly believe that your wrong assessment model is correct. This means that you cannot achieve the success rate like Buffett, and you cannot beat the market.

After all, in addition to value evaluation models and many other knowledge, investment is more important than human nature and spiritual energy. For ordinary people to succeed in investing, they must be able to pass the test of human greed and fear in the market. This is the most important factor in success in the market.

Usually knowledge and information can only be transformed into your own unique and effective abilities only after your thinking, analysis, time and practice, and after overcoming human nature.

“So how should we deal with the current era of high inflation and low growth? 』