The simplest thing in investment

Time:2021-10-23

Self cultivation of leek

I recently read the simplest thing in investment. I feel the content is good. Here is a record to improve the self-cultivation of leek.

Lu Xun once said: “as long as people have money, their troubles will be reduced by more than 90%, their EQ and IQ will be improved, and they will not get angry.”

But Lu Xun didn’t say where the money came from.

The simplest thing in investment

People say that if you want to make money, you must first learn to invest.

But how to invest? People hold their own opinions.

each sticks to his own viewpoint

Xiao Ming is a science student with a pair of thick glasses. He claims to be good at rational thinking. His idol in the investment industry is Buffett.

Xiaoming thinks that the most irrational thing is to walk with Xiaohong.

Xiao Hong is weak in literature. She has a good level of liberal arts since she was a child. She is easy to hurt spring and autumn. She claims to be the last romantic poet in the 21st century.

Xiaohong felt that the least romantic thing was to walk with Xiaoming. At the beginning, she didn’t know what she liked about this elm head.

Ben Kai and Ben Kai are well water and don’t offend the river. All this should start with the third party – Xiaohua.

Xiaohua is a newcomer to the stock market. She has a good relationship with them and is open-minded and eager to learn.

Chasing up and killing down vs selling high and buying low

Once at a dinner party, Xiaohua asked a question: “when buying stocks, should we chase after the rise and kill the fall, or sell high and absorb low?”

“Of course, it’s chasing up and killing down,” Xiao Hong replied without thinking.

“The suggestion is to throw high and absorb low”, Xiao Ming said slowly.

“Why?” Xiaohua looked at the two people suspiciously.

“When a stock rises sharply and everyone flocks to it, you will certainly continue to rise after you buy it; when a stock falls sharply, everyone will disperse like a frightened sheep and fall more and more miserably. Sell it quickly and stop the loss in time.”

Xiaohong said to Xiaohua and turned her eyes to Xiaoming.

Xiao Ming still has a calm expression.

“Buy when the price falls and sell when the price rises, so as to make a price difference. It’s better to follow the trend.”

“Follow the trend? I think you want to walk against the sky?” Xiao Hong’s tone was obviously sarcastic.

“I’m greedy when others are afraid, and I’m afraid when others are greedy.” Xiao Ming said loudly, pushing his glasses with his middle finger.

The simplest thing in investment

Xiaohua looks at the two who are getting more and more gunpowder, and quickly plays a round game.

“What they said is reasonable. They benefited a lot. They were impressed and opened up…” Xiaohua quickly moved to change the question, “do I buy 1-2 familiar stocks or more stocks?”

Decentralized investment or centralized investment?

“Of course, buy more stocks,” Xiao Hong calmed down. “As the saying goes, don’t put your eggs in one basket.”

“As the saying goes, you can’t chew too much”, Xiao Ming obviously holds different opinions. “Investment should be refined, not indiscriminate. Focusing on your 1-2 stocks can better ensure the maximization of income.”

“The market is not good, you must not be firmly set in it.”

“Too much investment, some up and some down, in the end, it’s not empty.”

“Stop, stop,” Xiaohua said. “The more I listen, the more dizzy I am. I’d better eat first.”

Who do you think Xiaohua should listen to?

Diversity dividend

Some time ago, I read another book called diversity dividend.

It mainly refers to the diversity of organisms, the diversity of biological species, to combat the complexity of the environment.

Everyone feels that everyone has their own ideas and decisions. Is this a good thing or a bad thing?

It is precisely because everyone makes different decisions that lead to the fluctuation of stock price and the emergence of trading.

If everyone’s decision-making is completely rational, and the information is equal and the decision-making is completely consistent, what will the secondary market become?

For example, a stock continued to fall due to policy reasons. It is obvious to all that everyone is selling.

Then, the stock price will keep falling until it falls to a fluctuating range where some people think it will rise and some people think it will fall.

Golden rule

It is precisely because people have different views that lead to the prosperity of the market.

So, is there any golden rule in the investment community?

For example, analyze the K-line chart, analyze the company‘s financial reports, analyze the global economy, public opinion analysis, and even gossip?

It’s always too complicated.

Is there anything simpler?

The simplest thing in investment

This book expresses the core view – value investment.

Value investment

There is a vivid metaphor between the value of the company and the price of the stock, that is, people are walking their dogs.

People are moving forward, representing the value of the company. The rope in people’s hands leads the dog. Sometimes the dog is in front and sometimes behind.

But many investors can only see the dog’s position (price) and can’t see the person’s position (the value of the company).

An investment in the value of the company itself can be regarded as a value investment.

But you don’t know how long the rope in your hand is or how happy the dog is, so value investment is generally a long-term investment.

The simplest thing in investment

How to invest

In fact, the core of investment is only three points:

(1) Valuation

The valuation of a company is the easiest to see. With the development of information technology, you can see the stock price information clearly when you open any financial app.

Buy stocks at undervalued prices so that you are more likely to make money.

(2) Quality

The quality of a company is the most worth studying.

There are many chapters about what a good company is.

In short, companies with a moat and growing are good companies.

Of course, it is difficult to find these great companies, because many companies become less great once they are considered great.

(3) Timing

This thing depends on luck, courage and courage.

Of course, courage and stupidity are often only a thin line.

We always know it will come back, but we don’t know when it will come.

The simplest thing in investment

Scenarios where value investment is not applicable

If there is a criterion that is universally applicable, it will be arbitraged.

There is a rule that allows you to invest without loss, that is, don’t invest.

No matter how much value investment is touted, it also has its inappropriate scenes.

We believe in any kind of criterion and should recognize its limitations.

(1) The intrinsic value of value investment should be easy to determine.

For example, Coca Cola invested by Buffett has stable profits in the future, and its internal value is easy to be determined.

(2) Intrinsic value should be independent of stock price.

No matter how the stock falls, do not affect the company’s own business operation.

For example, if the stocks of some investment banks fall sharply, the business will be greatly affected.

(3) Use in the right market.

(4) Select the appropriate investment period.

Value investment is generally more suitable for long-term investment.

Some nonsense

The author also has some other views, which I like very much.

The stock market is the continuous game between policy and economy. From the historical experience, the final winner is generally the policy, because the characteristic of the policy is to increase the weight until the goal is achieved. Therefore, a stock market policy market, not the economic market, because the visible hand often beats the invisible hand.

For example, the share price of an Oriental Education Institution fell miserably.

Value investment is simple to say, but difficult to do.

If you invest a year’s savings in the stock market, you may be a little happy when you rise, but it’s definitely hard to sleep and eat when you fall.

Therefore, always remember the first rule of investment: investment is risky, and you need to be cautious when entering the market.