Learn to invest with Buffett

Chapter 25

Chapter 4 Section 3 The deviation of stock price from value is only short-lived

Charlie Munger and I both firmly believe that in the long run, we have always been confident in the development of American companies, but judging from the current stock prices, investors can only get ordinary returns, and the performance of the stock market has already There is a long period of time when the company outperforms itself, but that phenomenon always ends.It is impossible for the market to surpass the development of the company itself. I think this will disappoint many investors, especially those new to the stock market.

--Warren Buffett
In the stock market, the most common is the fluctuation of stock price.Sometimes we are faced with a company that is obviously very good, but the stock price has been hovering at a low price, which has caused many investors to reluctantly give up their love and stop the loss out.In fact, Buffett's view on this situation is that the fluctuation of stock price is a good thing, because the deviation of stock price is only a short-term manifestation. From a long-term perspective, it is impossible for stock price to deviate from its intrinsic value.

For example, when Buffett invested in Fruit Loom Company, it was when the company declared bankruptcy. At that time, Berkshire bought the company's bonds and bank bonds at a price of almost half the face value.You know, this bankruptcy case is very special, because although the company declared bankruptcy protection, even at this time, it did not stop paying the interest on the secured bonds, so that Berkshire can still get 15% profit.By 2001, Berkshire still owned 10% of the company's secured debt. It is not difficult to see that Buffett's approach is very different from that of ordinary investors.At that time, after buying at 50% of the face value of the principal, even if it was recovered at about 70%, the investment had already obtained a 40% profit return. If the annual interest return of about 15% was added, Bo The payoffs for Khir's company have been considerable.

In addition, a more typical case is that since the end of 2000, Buffett has successively started to purchase the debt of FINOVA.At that time, the financial company actually had some problems. The price of US dollar bonds in circulation had reached 110 billion US dollars, which had fallen to about 2/3 of the face value. Berkshire bought about 13/2 of the bonds at this price. 3% debt.The reason why Buffett chose this company is that the company is in danger and cannot escape the fate of bankruptcy.But even so, the company's net worth is still there.Berkshire's recovery of funds will also exceed the level of [-]/[-] of the face value.Even if the worst happens to the company, it can still be profitable.

Of course, the difference from the investment behavior of ordinary investors is that since Berkshire always acquires the controlling stake in the acquired company at every turn, in comparison, ordinary investors do not have the same investment skills as Buffett and others. The right to speak, which will ultimately affect the level of return on investment.

Investment motto:

What investors need to pay attention to in the investment process is that no matter how the stock price fluctuates, what investors really need to care about is the intrinsic value of the investment target. Even when the stock price is at a high level, as long as the stock price is much lower than the intrinsic value, it can still Invest; on the contrary, if the stock price is low, but if the stock price is already higher than its intrinsic value, it is still not worth investing.

(End of this chapter)