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The business of value investing – Six essential elements to buying companies like Warren Buffett- Charlie Tian 2009
https://bbs.pinggu.org/thread-695143-1-1.html (Page 180-188)
Ignorance Can Be Bliss, Ups and Downs of Market Liquidity
阅读到的有价值的内容段落摘录
Our daily lives are comprised of a series of decisions. What we do with those decisions and the choices we make shape the life we lead. As a toddler, your parents forced you to do things you hated, like eating your vegetables. The vegetables taste bad, but your parents love you and know that you must eat your vegetables to get your vitamins. At the same time, your parents will refrain from giving you candy and soda, even though they know how much you would enjoy the joy gained from the sugary sensation. They know that sometimes the things that seem good for you actually aren’t and those things that seem bad for you can actually be beneficial. Investors would be well advised to take this dose of wisdom along with them during their investing careers.
What are often perceived as stock market advantages can turn out to be the root cause of many investment mistakes for those individuals who fail to realize it. The market’s dangers are firmly rooted in human nature — specifically, our ability to feel the pain of loss more acutely than the pleasure of gain. Too many bad losses can rob us of our investing discipline. Eager to recoup losses in the shortest amount of time, many investors begin to accelerate the investment making process, often at the expense of sound analytical judgment. When we make bad decisions, we have no one to blame but ourselves. The ease and speed with which investors can trade stocks, and the barrage of market data now available to us, certainly don’t help. The ability to get in and out of investments at the click of a button feeds the speculative urges of market participants. Many of the market’s beneficial attributes often can be the source of the most detriment to the investor. Let’s examine some of those attributes now.
The same liquidity that provides many of the stock market’s advantages can also produce the most severe consequences. I’d argue that less liquid investments are better for investors’ well - being, providing fewer opportunities for them to make impulsive and costly buy or sell decisions. Liquidity is a very important function of our equity markets. Faced with unexpected financial needs, the ability to easily turn your securities into cash is a comforting option. Then again, given the unpredictable short - term volatility of stocks, a fair assumption is made that prior to investing in stocks, you have allocated away some funds for emergency purposes in the bank. This assumption further eliminates the need to engage in short - term oriented speculative activities in order to make money. One of the basic tenets of prudent capital allocation is that money allocated for the participation in equity investments should have a multiyear horizon, ideally at least 10 years. Yet many investors plunge into the stock market with unrealistic, if not foolish, expectations of overnight wealth creation. The technology mania of the late 1990s solidified this false belief that stocks could make you rich overnight. For a lucky few, they did become rich overnight. Tragically, investors saw this market as the new era of investing. You couldn’t afford not to be in the stock market, not when the auto mechanic was earning triple - digit returns on the side. Value investing has nothing to do with such anomalies. When stock prices are overvalued, as was clearly the case during the height of the Internet boom of the 1990s, the rational decision is to be on the side-lines analyzing the securities. Value investing is an investment framework that focuses on the process, not the outcome. With the right process, the outcome usually will be satisfactory investment returns.
阅读到的有价值信息的自我思考点评感想
Market liquidity has its place, however. Aside from enabling investors to access capital in times of need, liquid markets can serve investors by letting them sell that which is cheap to buy something cheaper. Realize that this is just the value investing process at work: scouring the market for the best available bargains. But when you are selling a 50 - cent dollar to buy a 30 - cent dollar, you are utilizing the markets for what they are: arenas to acquire ownership stakes in businesses at the cheapest possible price. Once you make an investment, the stock price will change daily based on the whims of investors on any given day. If your analysis was sound, then any short - term decline in price is merely price volatility. Before rushing to sell a stock that ’ s declined 25 percent weeks after a purchase, ask this question: What has happened to the long - term fundamentals of the businesses over the past two weeks to make the entire business worth 25 percent less? For good businesses acquired at sensible prices, the answer is nothing at all. Occasionally, you may come to discover that you neglected some important information that, when incorporated back into your analysis, leads you to reduce your estimate of intrinsic value. In such instances, you will have to determine the appropriate course of action. Selling out is tempting, and the liquid markets make it easy to do so. But by doing so, you turn volatility into a permanent loss of capital. For an effective comparison, consider today’s real estate market. In 2007 and 2008, home values were declining across the board, reaching double - digit percentages in California and Florida. But whether they realize it or not, homeowners actually benefit from houses ’ inability to be sold as quickly as stocks, given that the same measures of safety and prudence have been applied as if one were making an investment in stocks. If the home was (a) bought at a sensible price, (b) purchased with a long - term ownership orientation and not a short - term speculative purpose, and (c) paid for using money for that stated purpose, then homeowners won’t be subject to accepting Mr. Market ’ s offered prices. Unlike stocks, homeowners aren’t seeing quoted prices flash by the minute across their computer or television screens. But even if they did, no rational homeowner would rush to sell a home because the “quoted” price was 10 percent less in the afternoon than it was in the morning. With stocks, a quick call to your broker or click of a mouse is all it takes to unload your shares. Selling homes requires more time. But if houses were bought and sold as quickly as shares of stock, most homeowners and real estate investors would likely sell at the first sign of trouble — and thus sell too low. Indeed, there are meaningful differences between home ownership versus stock ownership. Even if your home is worth less, it still provides you shelter whereas a declining stock price only serves to reduce the value of your portfolio. Nonetheless, the general thought process behind the buying and selling of either asset is of great value when thinking about stocks. The litmus test question, again, is to ask yourself whether the true worth of the underlying business has equivalently changed by the same amount as the stock has in the six and a half hours that make up each trading day. Unfortunately, investors have their work cut out for them in utilizing their patience to the greatest advantage. Nothing in the field of investment today serves to promote a patient approach. Mutual fund managers are only as good as their most recent year’s investment performance. Brokers don’t get paid to tell you to do nothing; they earn a living by promoting activity. Analysts pump out information on the performance of a company based on the next quarter or two of operating results. From all angles, investors are given data in meaningless forms. The financial media breaks down the performance of stocks by the hour, as if investment results were determined at the end of the day. If the market were open only a few times a year, I believe many more investors would enjoy far better performance.
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