Before I start to explain the 3rd and 4th elements, allow me to quote below from Warren Buffet which is very much related today’s blog post :
"The Intelligent Investor has three big lessons: think of a stock as a part ownership of a business; the market is there to serve you, not instruct you; and always require a margin of safety. Berkshire shareholders are better than most at understanding that they own a part of a business.
In most of the case, best advice is the one which is simple to digest, a few choice of words can summarize winning strategies and rules of thumb quite nicely. Below are two of the most insightful and useful concise quotes about thinking investing as business like from Peter Lynn.
“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.”
Fundamental Analysis :http://www.investopedia.com/university/fundamentalanalysis/
Technical Analysis :
Knowing what an asset is worth and what determines that value is a pre-requisite for intelligent decision making -- in choosing investments for a portfolio, in deciding on the appropriate price to pay or receive in a takeover and in making investment, financing and dividend choices when running a business.
The premise of valuation is that we can make reasonable estimates of value for most assets, and that the same fundamental principles determine the values of all types of assets, real as well as financial. Some assets are easier to value than others, the details of valuation vary from asset to asset, and the uncertainty associated with value estimates is different for different assets, but the core principles remain the same.
< Some stocks will just move in sideways for long period of time,,, investors may opt for their dividend instead : SPH >
I am not good in analysing company with figure but t
The ThumbTack investor | CONTRARIAN, DEEP VALUE INVESTING IDEAS
According to Benjamin Graham, Mr. Market (stock market ) is a hypothetical investor who is driven by panic, euphoria and apathy (on any given day), and approaches his investing as a reaction to his mood, rather than through fundamental (or technical) analysis.
“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” By Seth Klarman
One of the financial world’s greatest debate is whether market are efficient .that is , whether price reflect all available information and thus represent the asset’s fair value.
2 schools of thoughts on market efficiency, one belongs to Eugene Fama ( who won the Nobel Memorial Prize in Economic Science in 2013 )et al a strong believer that market is fully efficient . Another camp that opposed market efficiency came from Behaviorist Economist like Robert Shiller , Daniel Kahneman ( another Nobel Memorial Price winner in 2002 ) et al.
According to Wikipedia , Behavioral economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, representative bias, information bias, and various other predictable human errors in reasoning and information processing.
Speculative economic bubbles are an obvious anomaly, in that the market often appears to be driven by buyers operating on escalating market sentiment/ irrational exuberance, who take little notice of underlying value. These bubbles are typically followed by an overreaction of frantic selling, allowing shrewd investors to buy stocks at bargain prices.
Rational investors have difficulty profiting by shorting irrational bubbles because, in the words of a famous saying attributed to John Maynard Keynes, "Markets can stay irrational longer than you can stay solvent. Sudden market crashes as happened on Black Monday in 1987 are mysterious from the perspective of efficient markets, but allowed as a rare statistical event under the weak-form of EMH ( Efficient Market Hypothesis ).
Behavioral Economist also believe that the existing of great value investors like Warren Buffet shows that market are not efficient and investors can take advantage of market inefficiency to achieve alpha in the long run.
For me, market are in fact efficiently inefficient , mean “ a bit of both “ .. haha . in Confucius we called it “ 中庸之道“ .. taking a middle or mean course .
I believe that because of “ creative destruction “ , some company may disappear due to technological change , lack of innovation or diminishing product value , but market as a whole will remain and any downward during crisis tend to revert to mean in the long run.
You may refer to my “trade” strategy that I tend to take more buy position when market crash and correct to below mean value and waiting for market to “reverting to mean “.
If there is no such opportunities occur , I will just wait patiently and accumulating more cash as what I’m doing now. I may keep the dividend for few quarters while waiting for the opportunities as we know that sometimes market could just moving sideway for very long period of time .
I may also temporary park my money (war-chest ) in short term bond although the yield is much lower than stocks I am holding.
We must remember that "market " always move in cycle ...like four seasons , sometimes we will have long and harsh winter and sometimes we will enjoy best springs .
Keeping our emotions in check is key trait for successful investor !
When Butterfly meet the Swan .
Market could be in very depressed or over-pessimistic situation if any “black swan “ event happens and things may get worse due to “ butterfly effect “. If that happen , it may reflect the utmost “irrationality “ of the market and pose for rare opportunities if one know how to take advantage on it ,of course with a little bit “ margin of safety” on stocks selection.
Concept explained : Black Swan
According to Investopedia : A black swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict; the term was popularized by Nassim Nicholas Taleb, a finance professor, writer and former Wall Street trader. Black swan events are typically random and are unexpected.
Concept explained : Butterfly Effect
The butterfly effect is the concept that small causes can have large effects. Initially, it was used with weather prediction but later the term became a metaphor used in and out of science.
In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state.
The name, coined by Edward Lorenz for the effect which had been known long before, is derived from the metaphorical example of the details of a hurricane (exact time of formation, exact path taken) being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier.
Lorenz discovered the effect when he observed that runs of his weather model with initial condition data that was rounded in a seemingly inconsequential manner would fail to reproduce the results of runs with the unrounded initial condition data. A very small change in initial conditions had created a significantly different outcome.
There's more than one way to skin a cat and All Roads lead to Rome !!
Everyone may have their own methods to invest in stock market ：