The three principles of value investing
ValueInvest cashback forexg (ValueInvesting) a common investment approach, specifically looking for under forexbonusrebated securities unlike growth investors, value investors prefer stocks with low cost-benefit ratios, book value or other measures of value are or are ready to take the road of value investing friends may be thinking about the question: value investing must allow us to Can we achieve our wealth dreams? In response to such a question, Warren Buffett, the master of the practice of value investing, said the following: value investing does not fully guarantee our investment profits, because we must not only buy at a reasonable price, but also we buy the future performance of the company to match our estimates in other words, the road of value investing forex discount brokers not a straightforward path, its future is actually full of many variables forexrebatesbrokers uncertainties. In other words, the road of value investing is not straightforward, and its future is actually full of many variables and uncertainties, from this point of view, value investing and other investment (speculation) path is not much different However, the last turn of phrase: But value investing gives us the only opportunity to real success Master is after all a master, the words are simple, loud and clear This is the assertion of a successful person, value investors in the details of all the discussion is based on the premise of this sentence A. Intrinsic value: the closest The earliest recorded exchange of wealth in the history of human wealth took place between the kings of ancient Babylon and Egypt, and the wealth exchanged included cloth, spices, furniture, bronze, jewelry and gold. Theoretically, intrinsic value is defined as the discounted value of the cash forexdiscountbrokers a company can generate over its remaining life, but the question is, how long is the remaining life of a company? How much cash can it generate? How credible is a judgment based on cash flows that are full of uncertainty? Furthermore, how should the discount rate be determined? At different points in time, different investors will have different choices, based on the calculation of the value is bound to be a hairs breadth, a thousand miles if you can not do an accurate value assessment, and how to know at what price to buy shares? It would not be an exaggeration to say that this is the greatest confusion for value investors. Regarding the calculation of intrinsic value, Warren Buffetts most prominent partner, Charlie Munger, once made an intriguing statement: Buffett often mentions cash flow, but I have never seen him do any calculations. It is an estimate, not an exact value, and it is also an estimate that must change accordingly when interest rates change or when projections of future cash flows are revised. In addition, Buffett admits that we are only somewhat confident in estimating the intrinsic value of a small percentage of stocks, but only in a range of values, and never in numbers that appear to be accurate but are fallacious. In the securities market, the excessive pursuit of precise quantification often does not bring good consequences Perhaps, but everything between the scientific and artistic level, we have to use the ancient Chinese saying: the application of the subtlety of the existence of a mind Buffett loves to quote Keyness phrase rather vague right, not precise wrong, is also similar although we believe that in a particular time and space, a companys value is only one, and we can only try to maximize the value of the company. Warren Buffett had learned two investment rules from his teacher, the founder of modern securities analysis, known as the godfather of Wall Street, Graham: first, never lose money; second, never forget the first So, how can you do not lose money? Graham himself gave the answer: I boldly distilled the secret of successful investment into a four-word motto: margin of safety as the core concept of value investing, if the margin of safety in the entire field of value investing in the supreme position, is not too much its definition is very simple and plain: the substantial value or intrinsic value and the price of the spread, in a more common sense, the margin of safety is the value of The degree or magnitude of undervaluation compared to price According to the definition, the margin of safety exists only when the value is undervalued or the margin of safety is positive, when the value is comparable to the price the margin of safety is zero, and when the value is overvalued there is no margin of safety or the margin of safety is negative Value investors are only interested in objects that are undervalued, especially severely undervalued The margin of safety does not guarantee that losses will be avoided, but it does guarantee that Those readers who like to be precise in everything may be disappointed again: it turns out that, like intrinsic value, the so-called margin of safety is also a vague concept, for example, from the definition alone we cannot be sure of the extent of the margin of safety in order to say that the margin of safety is sufficient and that it is possible to buy the stock. The premise of the effectiveness of our stock investment strategy is that we can buy attractive stocks at attractive prices. For investors, paying too high a price to buy the stock of an excellent company will offset the value created by this excellent company in the next 10 years. Third, the concept of margin of safety can be said that the concept of margin of safety is the opposite of the traditional investment concept of wealth and risk. What to do? Then there are only two words: wait in our lifetime investment process, we do not want and do not need to do transactions every day, many times we will hold cash and wait patiently, due to the irrationality of the market trading groups, in an uncertain time period, such as 3 to 5 years cycle, will always wait for a perfect high margin of safety moment In other words, the ineffectiveness of the market will always bring undervalued opportunities, then this is the time to take the plunge. Then this is the time for you to strike, just like the lion in the African savannah, which waits slowly in the grass when there is no prey, patiently observing the surrounding situation until the prey enters the ambush range and then strikes swiftly If you have accumulated such investment results in your portfolio many times, in the long run, you will definitely achieve opportunities that far exceed the market returns So the core of the margin of safety is in From a defensive point of view, the mastery of the margin of safety is more of an art of survival investment is like marching to war, the first thing to ensure that the enemy is not wiped out is the first element of the battle, otherwise everything will not be able to talk about this in a bullish atmosphere, in a heavily bubbled market, is particularly important margin of safety is not isolated, it is based on intrinsic value, the intrinsic value of In the calculation of intrinsic value, the expected rate of return is the most flexible parameter, and the increase in the expected rate of return and the expansion of the margin of safety both tend to a result, that is, a relatively low buying price. The fundamental reason is that the factors affecting the stock market price and the companys operation are very complicated and relatively speaking, the prediction ability of human is very limited, and it is easy to make prediction mistakes with a large margin of safety, even if our assessment of the companys value has some errors, the market price is still lower than the value in a longer period of time, and the companys development is temporarily setback, it will not prevent us from investing capital This is the essence of the margin of safety principle IV. Market volatility: unpredictable buying opportunities The daily volatility of the stock market is staggering, which is both a temptation and a trap The market is never a gauge that accurately and objectively records the value of securities based on their intrinsic qualities, but rather a collection of countless people who are partly motivated by reason (facts) and partly by emotion (ideas and concepts) This is the origin of market volatility. If you know that volatility is inevitable, why bother? Graham said a few months before his death: If there is one thing I have discovered in my 60 years of experience on Wall Street, it is that no one has ever been able to successfully predict stock market volatility. Mr. Markets characteristic is that he is emotionally unstable so on his happy days he will quote a higher price and on the contrary when he is upset he will quote a very low price In todays parlance, the market often makes mistakes and a good value investor will take full advantage of such mistakes Imagine that one day when trading, Mr. Market is suddenly depressed and quotes a very low price. In this case, speculators will often stop out of the market as required by the crocodile principle, while value investors? Quite the opposite, they will continue to buy more! These are two opposite trading strategies dominated by two different values This is what Warren Buffett warns us: see market volatility as your friend, not your enemy In fact, just to take Warren Buffetts Baksha Corporation, during the 1973-1974 recession, its stock price fell from $90 per share to $40 per share In the 1987 crash, the During the Gulf War of 1990-1991, it was again hit hard, with its stock price plummeting from $8,900 to $5,500 per share During 1998-2000, after Baksha announced its acquisition of GeneralRe, its stock price also fell from about $80,000 per share in mid-1998. As you can imagine, Warren Buffetts stock investments were under heavy pressure and stress at these times. If he had followed the crocodile principle, he would have stopped out of the market many times, but then we would not have seen the stock god today.
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