A Small Part of The Article for The Introduction of "Warren Buffett's Top 10 Business Rules for Beginners: Key Insights and Stock Market Q&A"
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Warren Buffett's Top 10 Business Rules for Beginners: Key Insights and Stock Market Q&A
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I started investing when I was 11. I just dithered away until I was seven or eight nine but unfortunately, I didn't get started till I was 11. but I bought my first stock when I was 11 and then I experimented with a whole bunch of things like timing of stocks and charting and doing all these crazy things It was a lot of fun profitless but a lot of fun and I did that until
I was 19. I read all the books on investing In the public library and just ate It up it was fascinating to me but I had no framework I was just searching for something I was hoping that little things on a chart would tell me something about what a stock was going to do it was kind of crazy but everybody else was doing It so I figured I'd do It too sometimes you turn
the chart upside down you know it still wouldn't help then 1949I read The Intelligent Investor by Ben grahamI'd never heard of them up until then and there are only two chapters in that book that are the key to it
but they set my philosophical framework for investing in three ways they're so basic and so simple It's hard to understand how they could be that important but the Ten Commandments are simple you know the first is that a stock Is part of a business I mean you can't think of a sock as something different
it's you value a business and then you divide it by the shares outstanding but what you have to think about is what kind of a business are you getting Into what areas economic characteristics for Its competitors what's Its management like all of these things that relate to a business Instead of a little ticker symbolI used to know when I was 11 or 12 the ticker symbols of every company virtually on the new york stock exchange could mark the boards of harris up them you know but I didn't know anything mean I could you know I knew that x was u. s steel and t was at t and so on
but I didn't know anything I didn't know what was behind them so I had to start looking at at these little symbols or these little names in the paper as businesses and decide how you value a business and what counts the second thing In that
in the book Is Graham gives you a marvelous set point In terms of how the investor should react to stock market fluctuations he talks about his mythical Mr. Market In chapter eight, there's been no better thing written In terms of the Investor's attitude toward stock prices
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most people react the wrong way to stock prices means they feel good when their stocks go up they feel bad when they go down they think the stock market is there to instruct them and Mr. MarketIs this partner you haveInInvesting you know he's a remarkably obliging partner this guy comes around every day and he tells you what he'll pay you for your interest in the business or what he'll sell you more at the same price nobody ever does that In private business
If you owned and owned a gas station together and I said every day I want you to come In and offer me your half Interest In the station and I can either buy your half or sell you my half at the same price and you have to come In every day and do It you'd be at a terrible disadvantage and you'd be at a particular disadvantage
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if you're Mr. Market in the market because Mr. Market or a friend of the market who obligingly gives you those figures every day different figures at the end of the day In the start of the day but he's naming a price at which you'll either buy herself the beautiful thing about him is that this guy is an alcoholic manic depressive I mean he is as unsound as they come he wanders around all day you know and looks at the crazy things and you know he's going to name all kinds of crazy prices and you don't have to pay any attention to them except when It's to your advantage to do so that's
once a year if it's once every five years It's one stock out of three thousand all you have to do Is sit there there you have no moral responsibility to this jerk you know I mean he Is naming these numbers you didn't ask him to but he's doing and all you have to do Is pick the one time when he Is particularly depressed or particularly manic or particularly drunk or whatever it may be and the market will be all of those things and you take advantage of it and that's
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what's remarkable about stocks if you think about It Is that you look at the high and low on all of these American companies for the last year you'll see case after case after case where the highest is twice below now that's for sound American businesses running along paying people selling goods and so on
If you go out and look at farmland 10 miles from here there's no way in the world over here that the farmland is going to range In value from x to 2x it doesn't maybe go from x to 110 of x or vice versa if you look at an apartment house near here and figures on essentially apartment houses like that over a year it won't it won't move 10 in a given year but here are the finest of American businesses and people just name these numbers that go all over the place and you don't have to play except
when you want to that's the important thing and that's what Graham tells you the market isn't there to instruct you to tell you anything the market is there just basically to serve you when you want It to serve you you know one of the most important things remember in stocks very hard to do but people have all these feelings about It the stock doesn't know you own it you know you're sitting there with these certificates for Berkshire the company doesn't even know you own It you know and the stock doesn't
it's trading now and they don't know you own It so It has no feelings about you mean you've got all these feelings aboutIt it's just part of a business Berkshire Is worth 75 000 times a million and a half shares you know roughly 110 billion or something like that It's a good Investment If It Isn't It's a lousy investment you know you have to value the business and graham you know it's amazing but people don't do that In wall street you bet you you hear price targets or that kind of thing but you see no one write a paper that says here Is the nature of this business over the next 20 years
Do you know what will it should that business sell for forget about what's selling for In fact one of the things I always like to do when I'm looking at Investments Is I like to look at them without knowing the price because
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if you see the price It automatically has some Influence on you you just sit down with the reports get an idea about looking up a company and get these 10ks and so one would rather not know the price because rather value It without knowing the price when used to handicap horses when I was a kid one of the things I would do IsI'd get the racing form ahead of time and there were nine horses In a race will say the probabilities of each one winning the race had to add up to 100 percent
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I mean one horse was going to win the race absent a dead heat or all of them dropping dead on the backstretch so if you went through the racing form and I would look at the third race at Hialeah would try to figure out the percentage chance of each horse winning the race and that had to add to 100 then I would compare those percentages to the odds but I, first of all, I wouldn't look at the odds first I would look at the past performance and all that thing first stock market's the same way third thing In graham's book Is the margin of safety
if you come up to a bridge and it says capacity ten thousand pounds and you're driving a 9 800 pound truck you drive down further and find another bridge I mean you know nobody knows exactly what that capacity is and It may have been signed may have been put up three years ago so you always leave a margin of safety you don't try to cut things that close you wait till something kind of shouts at
In the stock market and with those three principles you can build all kinds of structures on that but that's the foundation If you've got that mind and that's In the Intelligent InvestorI've never found anything that remotely compares with all three of the ones I just
you can't get rid of one leg of the three-legged stool and still have a good Investment Philosophy
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