Learn to invest with Buffett

Chapter 72

Chapter 12 Section 3 Buying too much is also a mistake

When several large acquisitions occurred in 1982, our reaction was not to be jealous, but to be grateful that we were not among them.Because in these mergers and acquisitions, under the impulsiveness of management, the thrill of the chase blinds the suitor, Blaise Pascal's observation is very apt: "It makes me think All the misfortunes are due to people not being able to stay in one room quietly."

Your chairman also left that room several times last year and almost became the protagonist of that farce. In retrospect, our greatest achievement last year was trying to make large purchases of shares in companies that we had invested a lot in the past, but due to some Factors beyond our control cannot be executed; if we do succeed, this transaction will definitely consume all our time and energy, but it will not necessarily pay off.If we charted the company's development from last year's report, you'd find two blank page spreads depicting the deal that fell through.

Our investment in stocks can only be done when we can buy attractive companies at reasonable prices, and we also need moderate stock market cooperation.For investors, if the purchase price is too high, it will offset the effect of the brilliant development of this outstanding company in the next ten years.

--Warren Buffett
Buffett often remains silent in the stock market for quite a long period of time, especially when others are carnival. At this time, Buffett is often ridiculed by the newcomers for being incompetent and outdated. Worshiped as "Stock God Moment"

For example, when Buffett subscribed for 30 billion US dollars of preferred shares of General Electric, Buffett said that "General Electric is an iconic American company facing the world. He has been a friend and admiration of General Electric and its leaders for decades. By".But behind this beautiful statement, there is a more real fact: Even though Buffett has admired General Electric for decades, he only decided to sell after waiting for the subprime mortgage crisis to occur and General Electric's stock shrank sharply.Looking back at the stock price of General Electric in the past ten years, it was as high as $2000 in the dot-com bubble in 60.5, and it was as high as $42.15 in this wave of bull market. It only sold when it was close to the low level in 20 years. Obviously, it has enough patience to wait for good prices from good companies.

Looking back on Buffett's investment history, there are countless examples of waiting for good companies to have good prices.The Wells Fargo Bank mentioned earlier is undoubtedly an excellent example.

Wells Fargo can be regarded as a victim of the S&L crisis in the last US housing market crisis.For a long-established bank founded in 1852, the stock price once reached as high as $20 in the early 90s, but in the S&L crisis, investors worried that the bank would be dragged down by the mortgage market and distrusted the bank, especially Concerns over whether Wells Fargo, which has the largest number of real estate loans of any California bank, can afford to suffer huge bad debt losses on real estate loans.As a result, the stock price of Wells Fargo Bank plummeted in a short period of time, falling to 86 US dollars in 4 months, and Buffett, who is known as the seer, has long been optimistic about Wells Fargo Bank, and bought a large number of Wells Fargo Bank at an average price of 41.3 US dollars stocks, and will gradually increase thereafter.

Investment motto:

For investors, if they pay an excessive price when buying the stock of an excellent company, it will have an offsetting effect on the value created by this outstanding company in the next 10 years.Investing should remember this important essence of Buffett's investment technique, which is more important than choosing a good company.

(End of this chapter)