"Treated like a business investment, is the most intelligent." - Ben graham, "the intelligent investor"
Quoted Ben graham, as the opening of the letter is right, because I am very grateful to learned from his ideas about investing. I talk about this, behind soon even talks to common stock, but first I want to chat with you, in a long time ago I had two small stock investment. Although they are not obviously change of my net worth, but I still can bring some inspiration.
The story began from 1973 to 1981 in Nebraska, the Midwest farm prices at the time, because it is generally believed that hyperinflation is coming, and small towns bank loan policy is added fuel to the fire. Then the bubble burst, causing prices to fall by 50% or more, destroyed the leverage of farmers and their creditors. During the bubble collapse in the aftermath of Iowa and Nebraska, bank number than we recent collapse in the great depression was five times so much.
In 1986, I from the FDIC (federal deposit insurance corporation) that bought a farm of 400 acres, is located in 50 miles north of Omaha. It took me 280000, it was a higher price than a few years ago a failed bank loans granted to the farm to a lot less. I don't know how to run a farm, but there is a love of the son of farm work. I learned this from his farm can produce how many bushels of corn and soybeans, business what would be the cost. Through the forecast, I can calculate the farm was about 10% of the normal returns. I also think that productivity will be improved over time and crop prices will be more and more is also high. Later these expectations.
I don't need to have different knowledge or intelligence to come to the conclusion that the investment will not have a downward trend, but there is potential, will be essential to good trend. And, of course, may occasionally crop failure, or the price is sometimes disappointing. So what? There is always some very good year, I totally won't have any pressure to sell the asset. Now, 28 years on, the farm income tripled, the value of it is five times as much as I pay the price even more. I still do not know anything about farming, second only recently went to the field to see see.
In 1993, I made another small investment. When I was the CEO of Solomon, and Solomon's landlord larry sepher Stan told me that there is a liquidation trust company plans to sell at New York university, near a commercial real estate. Bubble blasting again, this time spread to commercial real estate, the resolution trust company dedicated to the disposal of the collapse of thrift assets, it is these institutions optimistic loan policy encourages the farce.
The analysis here is simple. Like the farm's case, the assets' current yield is about 10%. But inefficient assets are liquidated trust runs, if put some empty shop rent, its income will increase. And, more importantly, about 20% area of the largest real estate project of tenant to pay rent for about five dollars a foot, while the other tenants an average of $70. Nine years later, the cheap lease expires will certainly bring revenue growth significantly. This position is also very good assets, after all is not going to move New York university.
I joined a small group to buy the building, larry and Fred Ross was among them. Fred is a experienced senior real estate investors, he and his family will manage the assets. In recent years is also true that operates by them. As the old lease expires, income tripled, now the dividend is more than 35% of our initial investment. In addition, the original mortgage by refinancing in 1996 and 1996 respectively, this approach allows for a few special dividends, added up to more than 150% of our investment. As of today I haven't seen this asset.
Get income from the farm and the university of New York real estate, is likely to be the next few years will also increase. Though not dramatic benefits, but the two investment is reliable and satisfactory, I'll hold, and then passed on to my children and grandchildren.
I say these stories is to clarify the basis of some investment principle:
Obtain satisfactory return on investment, don't need you to become an expert. But if you're not, you must recognize their own limitations and follow a set of feasible method. Keep it simple, don't put all your eggs in one basket. When someone promised you short-term profits, you should learn to say "no".
Productivity in the future, focus on the proposed investment assets. If you have some assets as a rough estimate of future income, is uncomfortable, forget it then move on. No one can estimate the likelihood of each investment. But it is not necessary to be a the almighty; As long as you can understand it is ok to what she had done.
, if you are focused on the future price movements, plans to investment assets that you are in speculation. There is nothing wrong with this itself. But I know I can't successful speculation, and for those who promote themselves can continue successful speculators are skeptical. Half the people throw COINS for the first time to pressure on treasure; But these winners if continue to play, no one can have a profit is positive expectations. In fact, a given asset prices recently, never is a reason to buy.
, through my two little investment as you can see, I will only consider what an asset can output, and didn't care about their daily pricing. Focus on the field of talent can win the game, the winner won't be those who focus on the scoreboard. If you can enjoy Saturday and Sunday to watch stock and also try the working days.
, form their own macro point of view, or listen to others to forecast the macro or market, is a waste of time. In fact this is dangerous because it may blur your field of vision, let you can't see the really important facts. (when I heard the TV commentators glibly to assume the tendency of the market, I will recall the mitch vitriol emanating mentor: "you don't know how much the game is simple, until you've walked into the studio.")
My two purchase is completed in 1986 and 1986 respectively. Decided to make the investment, the state of the economy, interest rate or next year (1987 and 1994) of the securities market, it doesn't matter to me. I can't remember the time of the news headlines, or authorities said something, no matter what others say, Nebraska, has been growing corn, students will also be gathered at the university of New York.
In my two little between investment and stock investment, there is an important distinction. Is that the stock will let you know the stake real-time pricing, but I've never seen on my farm or New York real estate price.
Stock market investors have a huge advantage, that is the value of their holdings have wide fluctuations. For some investors, it is. After all, if a moody's friends, every day around my property to my shout out quotation, willing to offer to buy my farm, or to sell his farm to me, and the quotations will be according to his mental state, severe changes in the short term, I exactly how to use his this kind of irregular behavior for a profit? If his daily price is ridiculously low, and I have extra money, I would have bought his farm. If he shout out offer absurdly high, I'll sell him either, or continue to farming.
However, the holders of the shares tend to by other shareholders capricious and irrational, to oneself also is not rational. Because the market is too much noise, including economic conditions, interest rates, stock prices, and so on. Some investors believe pundits advice is very important, even worse, also think it's important to refer to their comments to invest.
Who has a farm or house can silently assets held for decades, but when they come into contact with a lot of stock quotes, and commentators are always suggested that "don't have to sit, to buy and sell!" , they often become. For the investors, the liquidity is originally can have absolute advantage, has now become a curse.
A flash crash or other extreme market volatility, the damage to investors, will not be more than a quirky and love speak neighbor farm investment hurt much come to me. In fact, falling markets for real investors, is of help, if the price is far lower than the value of time, in his hand and money available. At the time of investment, the atmosphere of fear is your friend; A happy world is your enemy.
Occur at the end of 2008, during a serious financial panic, even a severe recession is obviously formed, I have never tried to sell my farm or real estate in New York. 100% if I have a good long-term prospects, with a solid business for me, even consider to sell it a little, will be very stupid. I hold a small part of the stock is good business, why to sell? Precisely, each a small part of the last may disappoint, but as a whole, they must can do it. Does anyone really believe that the earth will engulf us amazing productive assets and unlimited creative human beings?
When Charlie munger and I buy the shares, we will take it as a part of the business, when we bought the whole business analysis and thinking content are very similar. We will begin with a judge oneself can easily estimate the, assets income in the next five years or more. If the answer is yes, and in and we estimate the bottom line corresponding to the reasonable price, we will buy the stock (or business). But, if we don't have the ability to estimate the future revenue (often encounter this situation, we will simply move on and continue to look for the next potential targets. In our work together 54 years, we never macro and political environment, or the opinions of others, instead of an attractive offer. In fact, when we make decisions, didn't even think about these factors.
But it is essential that our ability to recognize their circle border, and to stay in. Even so, we are still on stock and business has made some mistake. But when they are not a disaster, such as in a long-term rise in the market, based on the expected price behavior and desire led to the purchase.
Of course, most investors did not take commercial prospects to study as the first priority in life. If wise enough, they will know their understanding of specific business is insufficient, cannot predict their future profitability.
I give these amateurs have brought the good news: the typical investor does not need these skills. In general, American business has been doing very well, later will continue to be good, but what is certain is that there will be unpredictable hot and cold). In the 20th century, the dow Jones industrial average rose from 66 to 11497, rising dividends paid to promote the development of the market. In the 21st century, will be able to see more profit, will almost certainly have a lot of harvest. The goal of non-professionals should not be selected out of the big winners, he or his foreign aid is out of the question, but should hold all kinds of business, as part of the total together will have a very good performance. A low cost S &; P500 index funds can meet the target.
This is for amateurs say what is "investment". "When investing" is also very important. One of the most dangerous is timid or novice investors at the time of market prosperity, and then see the paper losses to wake up. (think of barton biggs recent observations, "a bull market is like sex, the feeling at the end of the best.") investors to solve this kind of mistake trading method is to accumulate shares in a long time, and never in a bad news and sell price is far lower than the peak. Follow these principles, "what all don't understand," not only do the diversification of investors, also can maintain cost minimization, it can be almost sure, can obtain satisfactory results. In fact, relative to the knowledgeable, but even couldn't see their weakness of professional investors, a can be practical and realistic in the face of their shortcomings, simple, investors may get a better long-term returns.
If the "investors" crazy buying and selling each other's farmland, yield and crop prices will increase. These ACTS only as a result, due to the farm owner advice and convert asset attributes and cause a lot of cost, make the total income will be reduced.
However, those who can benefit from advice or produce deal, have been urged to individual and institutional investors become positive. This has led to friction costs are high, for investors, overall is unrelated. So, ignore the noise, keep your cost minimization, invest in stocks as investment you are willing to farm.
I should add, my wealth is in my mouth, my suggestion here, nature and I will list some of the instructions are the same. Through a will, to achieve the goal of cash custodian to protect the interests of my wife. My Suggestions to the custodian is simple enough: 10% of the cash to buy short-term government bonds, with 90% for the purchase of a very low cost S &; P500 index fund (I suggest a pioneer fund VFINX). I believe follow these guidelines trust, most investors can be more expensive than hiring investment managers, gain better long-term returns, pension funds, institutions or individuals.
Now back to Ben graham. I bought a book written in 1949, "the intelligent investor", and through the investment to discuss in this book, learn the most of his ideas. My financial career as to buy the book changed.
Before reading a book, I was still hovering in the investment environment, in which all written materials about investing. I read most of the content is fascinated me: I tried hand drawing, use market marker to predict stock movements. I sat in the brokerage office, looking at the stock quote coil, I also hear commentators. These are interesting, but I do not tremble, because I also don't know anything.
On the contrary, this idea can use the plain text, concise and easy to understand logically to clarify (no Greek letters or complex formula). For me, the key is the latest version of the eighth chapter and the contents of chapter 20, these views led me today's investment decisions.
Several interesting tidbits about the book: the latest version includes an appendix, which describes a investment has not been mentioned, is about the fortune investment. This in 1948, when he wrote the first edition of the book made acquisitions, attention, this mysterious company is government employees insurance company Geico. If this didn't see that is still in the initial Geico qualities, my future and Berkshire will be greatly different.
1949 version also recommend this book for a railroad stock, then sell $17, earnings per share were $10. (I admire this one reason is that he have the courage to use the current example, if the wrong will let yourself be.) To some extent, low valuation is caused by the accounting standards, then does not require the railway company in the current-account surplus reflects the subsidiary of a large number of surplus.
Recommended stocks is the north Pacific company, it is the most important subsidiary of Chicago, burlington and quincy. The railway is now an important part of the burlington northern railroad, but Berkshire now completely with burlington northern railroad company. When I read the book, the north Pacific, the market value of about $40 million, now it's heirs can earn so much every four days.
I already can't remember how much was spent to buy the first edition of "the intelligent investor". Can be stressed out, no matter how much you spend on this motto: is the price you pay out, value is what you get. I have done all the investment, buy this book is the best investment (except the books which I buy marriage certificate).
