Source: Brokerage China
Recently, the stock market has rebounded, and a large number of funds are obsessed with the short-term game of grabbing the rebound, and people are keen to flexibly enter and kill with the market temperature. But the success of long-term investment depends on long-term good behavior, not the agility to get in and out.
Last Friday, Chinese assets once again launched a "general offensive". As of the close, the Shanghai Composite Index rose 2.91%, the Shenzhen Component Index rose 4.71%, and the ChiNext Index rose 7.95%. Hong Kong stocks also rose sharply across the board, with Hong Kong's Hang Seng Index closing up 3.61% and the Hang Seng Tech Index up 5.77%. How should investors respond to the hot market? Fast in and fast out or hold firm? Before making a decision, let's take a look at two stories.
An ordinary old man who died in 2014 left behind a huge sum of more than $8 million, and he only worked as a janitor and a gas station during his lifetime. The old man, Ronald · Reed, made a sensation by leaving $2 million to his stepchildren and donating the remaining $6 million to local hospitals and libraries.
However, Ronald's wealth did not come from a secret source, he did not win a huge lottery or inherit a large inheritance, his money came from the fact that he saved every penny and invested in blue chip stocks, which snowballed into more than $8 million after a long period of compound interest growth.
Davis Sr., the founder of the "Davis Dynasty", spent nearly 50 years turning $50,000 into $900 million, achieving 18,000 times the investment income. Davis Sr.'s experience is that timing is futile, and in long-term investing, a handful of big winners who are worth investing for a lifetime will bring you significant wealth.
In fact, as the above two investors demonstrate, the success of financial management has little to do with your IQ, education, etc., but is closely related to your behavior habits, and long-term good behavior habits create wealth. As Graham said, the secret to investing success lies in your heart, and how you invest is far less important than how you behave.
A source of wealth
Wealth comes from a combination of compound interest growth and longevity, not speculation about getting rich overnight.
One day in 1992, Davis Sr. handed an oversized blue binder to his grandson, Chris, with his portfolio inside. Although his portfolio includes a lot of stocks, what really brought him wealth were a few big winners, which Davis Sr. had held since 1960, such as Wyeth Financial, Rauschenberg, Warhol and other big bulls. As of 1992, the 12 stocks in Davis Sr.'s portfolio were worth $261 million.
Second in Davis' portfolio is Berkshire · Hathaway. It can still be seen that Davis Sr. Select Advisors is a significant shareholder of Berkshire · Hathaway, holding 1,976 shares, while Berkshire's current stock price is nearly $700,000 per share, and the market value of this stock alone is about $1.3 billion.
Davis Sr. was once on the Forbes list, but he began investing only $50,000 in 1947.
"It's nice to go from $1 to $2 to $4, but to go from $4 to $8 to $16 is magical. Just wait long enough, and the next doubling will get you on the road to riches. Andrew, the third-generation investor in the Davis family, said.
Davis Sr. doesn't believe in timing. He sits on an insurance stock and has weathered the day-to-day, weekly, monthly ups and downs. He sat there, through a mild bear market, a severe bear market, a crash, a correction, and remained motionless. But as long as he believes the company continues to have strong leadership and the ability to continue to grow with compound interest, he will hold it. Davis Sr. has a lot of patience, and once he buys a good company, his best decision is to hold it and never sell it.
Do your homework
Investors need to do their homework. Essentially, the only reason you buy a stock is that you think the company's share price is worth investing in right now, not that you think there will be a bigger fool who will be happy to spend more money to take your stock in a few months.
In fact, compound interest growth is the true source of wealth, and if you count on gossip, luck, or the courage to get in and out, sooner or later you're going to mess up your investments. For those investors who have been in and out of the A-share market for more than 20 years, the vast majority of their wealth levels have not jumped, and the past 20 years or so have been a golden period for the rapid growth of high-quality companies.
The core of investing is to arrange the money you want to use today, expect to get more returns in the future, and imagine that each stock in your portfolio owns a portion of the company, which involves two questions: what kind of company to buy and at what price.
You need to have the ability to assess the value of a listed company. Everyone has their own circle of competence, and Davis Sr. was a regulator in the insurance industry before entering the investment career, so he held multiple insurance stocks throughout his life. Since investment requires at least predicting profits for the next 3 to 5 years, it is best for investors to choose companies that are easy to evaluate. For companies you can't read, no matter how tempting the candlestick chart is, never let it into your portfolio, hot stocks in popular sectors can leave you destitute.
In addition, investing also requires a reasonable price, which is usually only encountered in bear markets. Bear markets make people money, and it usually takes many years to understand this phrase. When bear market prices are extremely low, buy companies with strong balance sheets, low debt, real earnings, and pricing power, which tend to weather the storm and eventually have a bigger advantage, as similar companies have been forced to shrink or have gone out of business during difficult times. You must know that every investor will inevitably make mistakes, and only by insisting on not paying too high a price can the probability of making mistakes be reduced.
In addition, it is necessary to hold it for a long time. Only by making investing an important act in life can you be cautious; Investors who make a lot of money do not rely on short-term speculation, but often rely on chasing mediocre opportunities, perseverance to hold for a long time, and ultimately obtain long-term good returns. Frequent short-term trading not only means an increase in transaction fees, but also an increase in the probability of making mistakes in the investment.
Investing is not about moving forward, but about having a strong willingness to learn from the mistakes of oneself and others. A successful investor needs to consciously look back on the long history of finance in order to understand the logic of the stock market, so as not to lose himself when the stock market rises or falls. You should not only learn from your own lessons, but also learn from the lessons and experiences of others, if you make mistakes through your own hands-on approach, the cost is too great, it is best to avoid the mistakes of investing by absorbing the lessons of others.
Psychologically, you have to be both strong and humble enough. Powerful is not what others say, no matter what others say, to believe in their own reasonable conclusions based on facts and reasoning; Humility is knowing when you make a mistake and correcting it immediately.
(Bibliography: The Davis Dynasty)
Editor-in-charge: Wan Jianyi
Proofreading: Gao Yuan
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