Learn to invest with Buffett

Chapter 71

Chapter 12 Section 2 Make a mistake, be sure to understand how big the mistake is

In 1993, I used $4.33 million of Berkshire stock to buy a shoe business. I believed that the stock had a sustainable competitive advantage, but this advantage disappeared within a few years.However, what happened later was that I used Berkshire shares to greatly magnify this mistake. This time I spent not only $4 million, but $30.5 billion.In effect, I was trading 1.6% of a good company for a worthless, shitty company.

Dexter was the worst deal I've ever made in investing, but I'll still make a lot of mistakes in the future, and I can bet you that a Bobby Bayer lyric explains how in mergers and acquisitions What often happens: "I never sleep with ugly women, and when I wake up, there are several lying around me."

--Warren Buffett
Looking at the success of successful people, you will find the truth contained in Buffett's words: you can learn more from failure than from success, and there are always many failures behind success.This truth is equally true in the field of investing.

Someone once took successful investors in the United States as the research object and found that those successful investors generally have two characteristics: First, they never pursue perfectionism.Second, never take investment failures to heart, and only focus on future challenges.

Since high-return investment opportunities must be accompanied by high risks, failure is an inevitable process for investors, and it is also a part of successful investment. Most successful investors have experienced several failures before accumulating success.If someone says to you, "I haven't lost money since investing," there are only two possibilities: he is lying to you, or he never invested at all.The entry condition for successful investment is to be able to withstand the test of losses. A person who has never failed cannot become a big weapon;If you require yourself not to lose every time you invest, or to regret every time you lose and blame yourself, over time, you will find that the best strategy is to be extremely conservative and not take any risks. No wonder.

As we all know, Soros's success made people worship him as a god, and he also tried to imagine himself as a god. He called the foundation he managed the "Soros Empire".However, Soros also failed at times. In the Hong Kong dollar battle and the Russian financial crisis, Soros suffered heavy losses.Misfortunes never come singly. Since Soros lost to Russia, he has missed again and again. His hedge fund lost 20.15%, and lost 1998% in the first half of 1998. At the beginning of 20, Soros lost about 20.15 billion U.S. dollars in this battle alone. The overall loss of his funds throughout the year reached 30%, about [-] billion U.S. dollars, and his vitality was severely damaged.

Therefore, even Soros, the financial tycoon, is not always correct, but some people often only see the endless wealth he created, and blindly worship him, thinking that every word Soros said is golden and jade, never wrong.In fact, Soros thought the idea was ludicrous.He said: "Frankly, I make a lot of mistakes like other investors, but because of my performance, people will think that I have won many times. In fact, this is misleading. I feel that I am different. It lies in being able to recognize one's own mistakes before others do." Indeed, as the saying goes: "It's never too late to make up for it." Since people are not sages, who can be blameless?As long as you can find your own mistakes in time and take measures to correct them, you can also achieve the desired purpose.

In fact, many times it is not that investors do not find mistakes, but that they have not learned from them after making mistakes.In this way, once there are serious consequences, they will say: "I knew..." But there is no medicine for regret in the world. When the situation deteriorates, no matter how good the remedy is, it will be useless.Therefore, whether it is investing or doing other things, it is always beneficial to find mistakes at the first time and gain experience in time to guide future actions.

Regarding how to discover these mistakes in the first place, this method is to find mistakes through the combination of theory and physical instinct.

First, ask yourself how you feel when you want to invest correctly or when you must be right.If you think you are right but keep losing money, will you have the idea that "there is a problem in the market"?

Second, put the trading situation behind you for a moment, close your eyes, and ask yourself, "How does my body feel right now?" Feel at ease."

Third, if you have full confidence in your initial analysis and judgment, and think that the market has a "bright future", so you try your best to cover your losses and the transaction finally gets your wish, will you still firmly believe in your analysis and judgment?

Fourth, think back to the worst time in trading, ask yourself how you felt when you wanted to be right, and then feel in your heart, does your body feel different?When we trade with the "right" attitude, our obsession creates something emotional.Recall that state until you feel the emotion.

If you can accurately capture your body's response to these feelings and describe them, you will be more at ease when the market goes wrong.

Investment motto:

Looking at Buffett's investment career, of course there are some failures and setbacks. However, the reason why he can accumulate more and more wealth is not because of his clever calculations or more accurate judgments than others, but because he is better than others. Better at spotting one's own mistakes and correcting them in time.

(End of this chapter)