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Buffett disagrees with equating volatility with risk, instead advising investors to embrace volatility as it means more opportunity.Buffett indicates three primary causes for investors to experience poor investing results: Buffett advocates for buying and holding for the long-term, and avoiding jumping in and out of the market.
Graham tells readers that it’s better to ignore the market rather than focusing on it on a daily basis. Market’s mood swings between being overly optimistic and overly pessimistic. Market tell you what the value of a particular stock is, do your own research and make your own value assessment. He talks about how we shouldn’t try to predict market fluctuations, and how we should be “fearful when others are greedy, and greedy when others are fearful.” Margin of safety: In value investing, the focus is on looking beyond the share price and instead focusing on a company’s intrinsic value.
Value investors try to find the intrinsic value of a business through research.
Buffett defines good businesses as businesses that “can employ large amount of incremental capital at very high rates of return.” When looking for good businesses an investor should look for a few key characteristics including: moats, economic goodwill, incremental earnings, simplicity, skilled managers.
Economic moats are defined as a unique competitive advantage that a company has over others, for example Coca-Cola’s recipe would be considered a moat because another soda company can’t easily replicate it.
Circle of competence: Only invest in what you know and understand.
If an investment is complicated to understand, avoid it.They compare this to the share price, and then purchase stock when a gap exists.This gap is called the “margin of safety,” and it helps absorb various risks.185-186) He says that we should focuses on strong, well-run businesses with skilled managers and buying stocks at a price that offers a sufficient margin of safety.Buffett lists 5 factors to consider when assessing an investment’s risk: Definition of risk: “We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.Berkshire is focused on attracting business-oriented long-term shareholders, and filtering out those focused on market-oriented short-term shareholders, which makes these letters a goldmine of information for the long-term investor. Cunningham compiles the key learnings from Berkshire Hathaway’s annual letters from 1979 through 2006.What makes the book so impactful is that Cunningham keeps the integrity of Buffett’s words from the letter, but reorders them by theme to make them much easier to learn from.In 2017, my Dad issued a challenge for me to start reading books about investing.After completing 4 books that year, he brought the challenge back for 2018-2019 with a new list of books.This character comes to his house every day in a different mood.Some days he’s ecstatic and some days he’s depressed. Market and discusses the mental attitude that investors need to have during market fluctuations in order to be successful.