Author The Way of Knowing and Doing in Eryu
Source Ealiu Investment Research Notes ID ealiu investment
From Charlie Munger’s speech at the 1995 WKF shareholders meeting, we have the following takeaways.
First, take a step-by-step approach to capitalize on big opportunities. The difference in the order will have a very different effect. Opportunities are not something we can control in advance, so we need to be on the lookout at all times to seize them when they arise.
Secondly, we need to be alert to the mentality of pursuing social recognition. Under this mentality, it is easy for people to be cheated without realizing it. This is actually a personal problem, for the pursuit of social acceptance means that people will follow what others do and then get into trouble.
Thirdly, when there is a big chance of winning, you need to know to place heavy bets. Sometimes it is necessary to make selective and concentrated investments based on the current situation. The decision to make heavy bets not only requires consideration of the probability of winning, but also a deep understanding of one’s own temperament Not all people are able to withstand the pain brought about by fluctuations, and concentrated investments are likely to bring about big fluctuations.
Next, let’s take a detailed look at the content of this year’s shareholders’ meeting speech, many of which are about investment banking More controversial Solomon’s preferred stock insurance and other businesses, so I will not make excerpts.
I’m not going to summarize it.
We don’t always borrow a penny.
If we see a particularly good opportunity, we are likely to borrow some money to invest. In the past, we have borrowed small amounts of money for investment purposes. In general, in Berkshire’s culture, we take a dim view of high leverage. That’s not to say we’ll never borrow a dime.
Charlie Munger, 1995 Westco Financial Shareholder’s Meeting Speech
We all know that Buffett and Munger have emphasized on various occasions not to borrow money to speculate on stocks, but as you can see from the quote above, the two old men do not follow that principle dogmatically, but rather judge it on a case-by-case basis. If there is really a particularly good opportunity, it is not impossible to borrow part of the money to invest within the safe range.
Of course, as the ability of the average eye general investors, we have to seriously think about the conditions behind borrowing money to do investment, the first is to have a particularly good opportunity, a good opportunity to be reflected in the high probability of high returns in the two aspects of the second point is the amount of money borrowed must be controlled within a certain range of leverage is not too big. In addition, there is a hidden condition, is to have like Buffett Munger kind of vision, patience and control.
Because the third condition is very strict, and most people are ordinary people, so absolutely do not borrow money to speculate in the stock market This sentence is actually very correct Do not reach a certain height, do not try to be strong, give up their own can not be controlled by the danger of things by no means lose face.
Two.
See the walking step, seize the big opportunity
In the past ten years, Berkshire has not developed step by step according to a pre-determined plan, but rather has taken steps to seize two or three big opportunities to reach today’s size. I believe that Berkshire will continue to take steps to seize big opportunities in the future. As for whether Berkshire’s float can continue to grow, it’s hard to say. If Berkshire can seize big opportunities, its float will continue to grow.
If you use chess as a comparison, a move is when you see your opponent make a move and then decide what you want to do with it. When investing, it’s the same order, watch the market reaction, then decide what to do, for what kind of market state, take the corresponding action, rather than have a certain fixed point of view in advance, and then follow the gourd to do.
Value investing, by no means a dogma, contains a general guide to respond, but the specific measures to be taken, but also need to be judged according to the actual situation.
In addition, we need to distinguish between the difference between seeing a step and taking a step to see a step, in fact, is a different order, the former is to see a step to take a step to assess and then make a decision, while the latter is to take action and then reflect on the first. The difference can be experienced in detail.
Look one step at a time is obviously better, if you only know one step at a time, then in the end, you will plant a lot of heels, wasting a lot of time. We observe the behavioral patterns of bosses and ordinary employees. Bosses often take one step at a time, judge the situation according to the situation, and know how to learn from other people’s experience, while ordinary employees are more likely to take one step at a time and not have a goal before taking action.
Three
Pursuing social recognition, often
makes people vulnerable to deception.
Scams often take advantage of what is known in psychology as the social proof phenomenon. When you see two or three celebrities take the lead, others will believe it. Even the chairman of Goldman Sachs participated, can there be any fake? Even the chairman of Goldman Sachs participated, how can it be fake? . This way of thinking is very dangerous. You don’t use the brains you have, you go with the flow and blindly follow others.
Telecommunication fraud Internet fraud is often a social concern, and being scammed or not is not a cognitive problem, but often a psychological problem Human nature problems, people who are scammed are often not because of a lack of knowledge, but in the lack of mastery of the proper psychological defense measures.
The social identity psychology is a very common weakness, people always unconsciously submit to the views of the group, and the group is often easy to get out of control, in fact, is also a lot of group phenomena described in the rabble of the underlying logic. Because of the pursuit of social acceptance, people subconsciously do things similar to others, so there is a lot of celebrity effect, advertising why looking for celebrities is the same reason. The other side is famous, or prestigious, then what they say and do is more likely to be believed, but you have to think about it, in fact, the other side is nothing special, many places are not as good as you.
One of the most important weaknesses we need to overcome in the stock market is to go with the flow and follow the crowd, and behind this approach comes the search for social acceptance.
Four
Frequent trading speculation
Doesn’t do much good for society
Speculative behavior does not benefit society. Wild speculation may even cause serious harm to society. The prevalence of speculation is not conducive to the long-term stability of a country.
What good does it do to our civilization to have so many talented people sitting there all day long trading paper stocks, with all kinds of middlemen dealing cards and handling chips like casino dealers? I just can’t figure it out.
Ask any business school finance professor and they’ll say the more trading the better. And yes, without the market for so many speculative transactions, finance professors would be out of a job.
Speculation is a kind of wealth transfer behavior, this process does not create wealth, accurately speaking, from the point of view of the total amount of wealth is not created. Of course, from a distributional point of view, from an employment point of view, it does have some value.
And from the point of view of a country’s long-term stability, the less speculative transactions, the better, fewer transactions, but also released more resources to do other things, but also to be able to have more intelligent people to vacate out, rather than stay in the stock market all day to calculate the lack of professional competence in the community of ordinary people.
Surely the stakeholders would prefer more deals We can probably guess what kind of people gave the leaders the idea for some of the previous similar policies , so that they could get more out of the distribution. One of the disadvantages of ordinary people in doing things is that they sometimes lack a spokesperson. Leaders are busy and need someone to convey the voice of the community, while ordinary people’s voices are hard to be heard and conveyed. This can be said to be a common problem in human societies.
V
Betting heavily when the probability of winning is very high
Holding three stocks at the same time is enough as long as I can stand the volatility. I came to this conclusion through rough calculations and logical reasoning. As a poker player, I know that when the probability of winning is very high, bet heavy.
I am also well aware that concentrated holdings are much more volatile. I know that I am a mentally tough person. I learned from my parents not to bow down in the face of adversity, and my own personality lends itself well to this method of concentrated holdings.
And I did suffer from the volatility. Look up Wheeler Munger Partnership’s 1973 1974 yield and you’ll see how much of a mess I was at that time. In fact, the two years of the crash were building strength, and without those two years of sharpening, there would have been no subsequent explosion.
Munger said that there are two conditions for concentrated stockholding, one is that the chance of winning must be very large, and the probability of winning is very high, so you can take a chance and turn a bicycle into a motorcycle. This condition is very critical, if you can not judge, do not bet heavily.
Secondly, you should have a strong enough mental capacity. Even when the chances of winning are very high, it is not suitable to take a concentrated position if you do not have a strong mental capacity. The stock market fluctuates greatly, if the concentrated position, the net value of the fluctuation is even greater, this time the news on the wind, may be unbearable. The rapid shrinkage of wealth will bring a lot of mental and material pressure.
Of course, Munger also mentioned the role of striving at the end. It is also a kind of courage to dare to take a long position after assessment and on the premise of ensuring that there is no bankruptcy In addition, after suffering, the mental capacity will also be enhanced.
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