I recently read an article from 1974 by Warren Buffett in which he was quoted saying, “I call investing the greatest business in the world, because you never have to swing. You stand at the plate, the pitcher throws you General Motors at $47! U.S. Steel at $39! And nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.” And I couldn’t agree more.
Patience and discipline are key qualities of investors and when combined with thorough research and analysis, grade-five math, a basic accounting class, hard work, persistence and perseverance, you are destined to win.
Risk is obsessed over in the finance industry but using a value investing approach (intrinsic value) as assets get cheaper (provided allocation concentration is controlled as well as leverage minimal or non-existent) the risk is mitigated in an arguably perfect correlation with negative price moves. An example of this would be if you are buying $1 for 50 cents, and it went to 30 cents, it has not become more risky but less risky as any rational person would believe. How could someone possibly believe if $1 increased to $2 it is less risky? The latter is certainly not the case. Intrinsic value can provide an anchoring point and increase confidence provided apples are apples and $1 is $1.
Buffett was also quoted from the article saying, “You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be Okay.“First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression.”
From personal experience I have found I made the best decisions and the biggest returns looking in unconventional spots doing the opposite of the majority (buying when others are selling, selling when others are buying) as reflected in one of my favorite Mark Twain quotes, “Whenever you find yourself on the side of the majority it is time to pause and reflect.”
It is not incredibly hard, and the professionals would not like you to know the actual simplicity of the business or they would be out of jobs. Now use your head and look for incredibly cheap companies as if you were buying a piece of ownership using net worth or book value calculations and KISS (keep it simple stupid), only analyzing business you understand.
Dividends and earnings growth can provide extra income or can be re-invested and compounded throughout your life time at an extraordinary pace.
Investing is truly a business where you are paid for your time and the sky is the limit, as countless billionaires and multi-millionaires have proven over the last century. If the world was going to end I don’t think fiat currency and gold bars are a concern (food, water, safety), so just sit back, relax and let the dividends roll.
Investing can quickly provide financial security, help finance businesses around the world and create jobs, as it truly is the lifeblood of our capitalist economy.
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"When you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain