Finding certainty from uncertainty

——Discussing Buffett with Mr. Liu Jianwei

Liu Jianwei's "8 Investment Lessons from Buffett" 1 From Buffett's letter to shareholders, the book systematically organizes Buffett's investment philosophy and summarizes it into six basic principles: the principle of competitive advantage in selecting target companies; the cash flow principle in evaluating corporate value; and the "Mr. Market" principle in analyzing market prices. " principle; the margin of safety principle for determining the purchase price; the concentrated investment principle for allocating investment proportions; the long-term holding principle for determining the holding period. Through such systematic organization, Buffett's investment philosophy scattered in his letters to shareholders has been refined, clearly showing Buffett's investment philosophy, and providing us with excellent materials and theories for further research and study of Buffett. Base. Thanks to Liu Jianwei for providing us with such a good book on Buffett, which also prompted me to reorganize my understanding and experience of Buffett's investment philosophy. In fact, in the process of writing this article, I relied on this book to understand Buffett's investment philosophy. In summary, I have benefited a lot from thinking about Buffett and reflecting on my own thoughts.

As stated in the book, Buffett’s investment philosophy can be summed up in one sentence: Concentrate all funds, buy the best companies at extremely low prices when people are most fearful, and hold them for the long term. have. From my personal experience of understanding Buffett, the key points are: think as an entrepreneur, judge as an investor, and buy and sell as a trader. Next, I will use the framework provided in the book as a basis to study and research Buffett with Mr. Liu Jianwei ***. I have slightly adjusted the order of discussion to better reflect Buffett's investment philosophy. Adjust the fourth lesson (market) in the book to the first order of discussion, as a way to understand Buffett's market; adjust the seventh lesson (stock holdings) in the book to the second order, as a way to understand Buffett's investment strategy. , and discuss the first lesson (self-knowledge) and the sixth lesson (combination) together here; the rest will discuss Buffett's stock selection, valuation and price respectively according to the order in the book; the content in the chapters may be slightly different. Adjustment.

1. Understanding of market returns and fluctuations: long-term returns are stable

The book summarizes Buffett’s understanding of market returns and fluctuations into the following points: The market’s long-term rate of return It is stable and has been stable at around 7% for 200 years. The long-term returns of outstanding listed companies will exceed the market, and due to the compound interest effect, their value appreciation will be many times higher than the market's. The short-term trend of the market is unpredictable, but in the long term, it is predictable. Judging from the 100-year history, it can be divided into three bull markets and three bear markets, with a total duration of 44 and 56 years respectively. ? Market trends and national economic trends often show deviations. Efficient market theory is wrong. Buffett disproved the error of efficient market theory from the phenomenon of Graham Village. The book adopts the theory of behavioral finance and believes that investor behavior is irrational. Investors make this mistake over and over again: People tend to make decisions in the rearview mirror, mostly based on what has just happened. It is often ineffective in the short term but tends to be effective in the long term. That is, the deviation of stock market prices from value will inevitably be corrected in the short term. ? Market uncertainty is an opportunity to obtain excess returns.

I agree with Buffett’s criticism of the efficient market theory. At the same time, I believe that the market is more complex than Buffett realizes, and it has a certain degree of predictability in the short, medium and long term: Ed The book "Chaos and Order in Capital Markets" by Gar E. Peters provides a statistical critique of efficient market theory. The market return distribution is not a bell-shaped normal distribution, but a stable Pareto distribution, with an obvious "fat tail"; the market trend does not move randomly, but follows a biased random movement, that is, a trend plus A noise.