If you learn anything from this legendary blanket it is patience and counter thinking. Patience is the dominant trait of any serious investor, and it's what separates him from the army of speculators who think they can beat the market by speculating.
Careful and long-term investment in quality companies is the core of the success of the most famous investor. Long-term means years, and often decades. He has held Coca-Cola shares since 1988, that is, for a full 35 years. Rumor has it that Warren drinks 5 cans a day, which I envy him because I try not to drink that sugar water. When asked if he will ever sell shares of the famous company, he usually summarizes that the parameters by which he first invested in Coca-Cola have not changed. He still believes that the company is a quality investment with an excellent perspective.
His Barshire Hathaway fund started operating in 1965. During the celebration of 55 years of work, in 2020, he announced that on average the fund earned 20.3% per year, which is a cumulative profit of 2,744,062% for that half century. If your grandfather invested $100 in 1965, that investment would be worth $2.7 million today. Social networks will only be buzzing after this fact; mimes were flying about my claim that €100 invested per month in the American stock market after 40 years becomes more than half a million. It's sad how intellectually unattainable simple math is to us.
From an early age, Warren understood the power of interest on interest. Albert Einstein is said to have said, “Interest on interest is the eighth wonder of the world; who understands earns; who doesn't understand pays." On Wall Street, you're often asked a question during a job interview: would you take a hundred million dollars or one dollar that doubles for a month during January. And they give you a few seconds to answer. This is where they catch you if you really understand this concept. Most get hooked on a hundred million even though one dollar, doubled every day from January 1st to January 31st, is over a billion dollars. Come on, come on, digitron in hand.
When you fundamentally capture this principle, adjust your investment activity to it. Young Warren, after reading the famous book 'The Intelligent Investor', realized what his calling in life was: to follow the advice of Benjamin Graham, the author of the mentioned book, and the simple principles of investing. Economist Graham was the first to define irrational stock market turbulence. The stock market often jumps and falls driven by the emotions of many traders who speculate trying to make short-term profits. The price does not represent the true value of the company, but is in imbalance - during the bull market it is overvalued and during the bear market it is undervalued. In the long term, the average price represents the true image of a quality company that has a good product and quality distribution. Logic dictates that you buy a quality company in times of economic crisis, when emotional people run to sell shares and thereby drive down prices. And to buy shares every time when the prices fall.
Stocks are sold only when the paradigm for which you bought the stock changes. In the case of Coca-Cola, the situation has not changed for decades. The company makes an impressive ROE, return on equity, of over 40% for years. If we compare that metric to the average of the soda industry itself, which returns about 10.5% ROE, it is clear that there is no reason to sell this investment. Coca-Cola remains the best in its class and represents an excellent long-term investment. The principle is simple, but discipline is key. Although the company is continuously successful, the share price does not continuously go up. The economic situation, political risks as well as the emotions of millions of traders influence the price to be often out of balance. The imbalance itself is an opportunity for disciplined investors to earn more than the market average.
Always remember that behind every action that jumps and falls are companies and the people who lead them. Quality companies employ top professionals who come to work every day and work just for you - the stock owner. If you are constantly buying and selling, that is, you are engaged in retail trading, you have a great chance of not being invested when those professionals do something important. A patent registration, a new marketing campaign or a new designer on the team often boosts sales significantly. This growth is accompanied by an increase in profits, and thus the intrinsic value of the company jumps. In the long run, the intrinsic value is always reflected in the market value, and not infrequently the market value jumps above the true value of the firm. And then the shares are sold.
A professional investor always checks the given paradigms, that is, constantly analyzes his portfolio. Every day it is checked whether the company is doing its job and expanding its business. Other companies are also analyzed in order to stay abreast of their development and investment potential. Beating the market in this business is hard work that requires full-time work. Warren Buffett himself advises fellow citizens to invest their money passively in index funds. These funds were created in the seventies of the last century and reflect the aggregate jump or fall of various stock indices. The S&P500 index tracks the 500 largest US companies. Investing in an equivalent index fund makes you an investor in the heart of the US economy. Historically, this index returns an average of 10% per year. This is an average and that is why it is important to be invested in the long term in order to achieve this return.
A quality pension can be achieved through passive investing, which the magician from Omaha Buffett himself recommends. If you patiently and disciplinedly invest your surplus capital in developed stock markets for years, you will have a comfortable old age. Investing in individual stocks is for professionals who devote their time to constant analysis of their companies. Most of you have steady, full-time jobs so doing active investing is out of reach. It is impossible to have two successful parallel careers, so passive investing is the way to a quality pension.
You can easily apply the experience of an old leaf without a professional career in investments. At the end of the ballad, you won't average 20% returns like him, but 10-11% is within reach. This requires decades of planning and counter-thinking. Buy when everyone is selling and sell when everyone is buying.
(fejsbucenje.com)
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