Category: Money tips Release Date: 2006-02-22
Buffett's holdings confidence comes from Newton's fourth law: movement to increase returns decrease (returns decrease as motion increases). He believes that out too often will reduce earnings, long-term holdings in order to be Italian. This is his operating style. To cope with this style, stock selection criteria are more stringent. First, the company does not touch the high debt, high-risk financial products do not touch that without a stable income of companies do not touch, is strongly influenced by the economic cycle does not touch the company. After rigorous screening, so that fancy eye Balao not many companies. He would rather give up a number of short-term strength of stocks, so they choose long-term stable income stocks, which is "abandoning the small on big" spirit. He made a remark: In order to reduce the error rate, the best way is to reduce batting. Rate should be reduced to combat selective, and not elected immediately admitted, but also have the patience to wait for the best time of admission was admitted, so he is giving up a lot of opportunities in exchange for a very small number of large chance. Most people eager to seize the opportunity, but the master is to learn to give up the opportunity. "Dao De Jing" says: The Road Day loss to learn to become increasingly. Most people are eager to seize the opportunity "to study the growing" and only a true master before he can "to Road Day Loss," the truth.
In fact, Balao's investment is a kind of difficult movements, most people learn come. His mastery of these difficult moves into Newton's fourth law. We all know that Newton's three laws of mechanics, namely, inertia, acceleration law, counter-productive law. The mechanics in the stock market have come in handy, but the financial markets because of the risk is particularly high, the law must be considered together with the perfect fourth. Understanding of the risk can be seen Balao has reached the realm of very special, and the risks in advance to prevent, rather than after the stop. After the stop-loss is a passive strategy of last resort, prior to defuse the risk can be truly guaranteed return.
Balao an article mentioned the baseball story. Baseball swing is not likely to be struck out, the stock market does not swing will not be struck out because the principal is still, the opportunity still. Baseball batting around 25% in general, showing that failure rate is very high, in order to reduce the error rate will have to find a good combat area, rather than blind luck swinging. To find a good fight against the region should first calculate the probability of its size, different areas have different chances. The same token, some chance of big stocks, some stock probability is small, in which risky stocks, probability on the smaller, risky stocks likely to get bigger. From the probability point of view to evaluate the risk, is a very objective and very pragmatic attitude.
Of profits and risks for most people, are the first assessment of profits, re-assess the risks, but the real master is the first assessment of the risk of re-evaluation of profits. These two different attitude will affect the long, medium and short-term mentality. Eyes shallow people who only see the short immediate short-term profits at the expense of medium to long term future risks; visionary who risks the future of the first perspective, first in an invincible position, again the pursuit of profit. The risks and profits are mutually reinforcing and health, but also quite the contrary. The best to do the opposite complementary to each other, do not risk with the profits appear. In which Newton's fourth law is the law of the prior risk prevention, which generally happens after the stop-loss than the much more sophisticated, and no wonder that Balao's average annual returns of up to 30%.
