Learn to invest with Buffett

Chapter 96

No.16 The highest level of investment, with shares in hand, but no shares in heart

No.16 Section 1
While we're happy with the way we bought our shares, we're really excited about buying 100% of a good business at a reasonable price.

--Warren Buffett
Although Buffett cannot buy 100% of the companies he admires, when he buys stocks, whether he buys 1% of the shares or 10% of the shares, he uses the standard of buying the entire company to measure whether the company is worth buying. .Buffett believes that buying stocks is not simply looking at the price of the stock and the recent rise and fall, but buying stocks with the mentality of buying the entire company.

Many of us investors often judge whether a stock is good or bad based on its price.When the stock price is 3 yuan, they think it is a bad stock and sell it crazily; but when it rises to 23 yuan, they think it is a good stock and rush to buy it.In fact, this is a big taboo for investing.Buffett said, "Investing in stocks is simple. All you need to do is to buy at a price below its intrinsic value, and at the same time believe that this business has the most honest and capable management. Then, you hold these forever Stocks will do."

Buffett's purchase of Coca-Cola is a typical example. In 1988, the stock price of Coca-Cola plummeted. Buffett was not intimidated by the falling price. After careful analysis, he found that Coca-Cola was a company with promising future development prospects, and its intrinsic value was much higher than the stock price at that time.So Buffett bought Coca-Cola stock for US$1988 million in 5.93, and nearly doubled his holdings in 1989, bringing his total investment to US$10.24 billion. In 1994, it continued to increase its holdings, with a total investment of 13 billion US dollars. Since then, its holdings have remained stable. At the end of the second quarter of 2009, Buffett held Coca-Cola stock with a market value of US$100 billion, making it the largest holding, accounting for nearly 20% of the portfolio. In 2008, Coca-Cola’s diluted earnings per share was US$2.49, and cash dividends per share were US$1.52. Compared with Buffett’s average purchase price of US$6.50, the annual investment yield was 38.3%, and the dividend yield was 23.38%. Buffett has also held stocks such as the Washington Post since the day he bought them, and Buffett said that he hopes to grow old with these stocks.

In Buffett's view, when we buy a company's stock, we actually buy part of the company's ownership.What determines whether a stock is worth investing in is an analysis of the intrinsic value of the company and the price we pay for that ownership.A good company will not become mediocre because the stock price falls, on the contrary, this is an opportunity for you to obtain ownership of the company at low cost; similarly, a mediocre company will not become excellent because the stock price rises .If we want to succeed in investment, we must try our best to buy the stocks of those excellent companies. Even if the company's stocks make you trapped in the short term, they will eventually bring you rich returns in the long run.

Investment motto:

When buying stocks, don't pay too much attention to the ups and downs of the stock price, but pay more attention to the intrinsic value of the stock.When a stock is trading below its intrinsic value and within a margin of safety, that's a good time to buy.

(End of this chapter)