Since October, the market has entered a period of large fluctuations and significant differentiation. Some sectors have confidently reached new highs on October 8th, while many quietly endure the winter in the bull market.

Seasoned professional investors are doing two things: focusing on fundamentals while also paying attention to market sentiment.

Dong Chengfei, from Ruijun, expressed a clear warning in the latest monthly report, reminding to beware of sailing on a ship for thousands of years.

"Overnight, there has been a significant shift in market aesthetics, where discussions on fundamentals seem to have fallen behind, much like in 2015. With ultra-high turnover ratios, the one-month increase in relevant stocks is equivalent to previous years' gains."

The market is not just about bulls and bears; whether it is a bull market is only visible in hindsight. We must maintain a sense of awe in our judgment of the market.

We must not assume ourselves to be in a bull market first, and then act recklessly, sowing the seeds of disaster for future losses. If the market's rise is based on the short-term wealth effect brought by such massive turnovers, then subsequent volatility is inevitable."

Xia Junjie from Renqiao, in the October report, mentioned, "I think, for most investors, increased volatility is a long-term erosion of returns rather than an enhancement, every sharp fluctuation is a test of human weakness."

Jingruiyu Xiaobo also made a very insightful statement, "Stocks do not know that you hold them. Optimism and pessimism are still behind the words, people's emotional changes, not facts."

Regardless of market sentiment, our focus on long-term business models and barriers far exceeds short-term price changes, always insisting on trying to understand different business models and calculate the cash flow brought by the business. On the other hand, we bid cautiously, usually when the price is friendly, that is, when there is no interest, we will be relatively more proactive.

Back to ourselves as ordinary investors.

In such a volatile and differentiated market, it is difficult to say that emotions are not involved.

I was just watching Buffett's exchange with students at the University of Tennessee in 2003, a meticulous and informative sharing session.

Now it still seems very valuable.

Buffett has also gone through many detours that ordinary investors have gone through, just that he started much earlier.

Bought his first stock at the age of 11, and then tried various strategies, such as seizing opportunities in the stock market, chart analysis, and other crazy things... He seriously dabbled in it, feeling interesting but not profitable.

In his words, "I have no framework, just looking for something, hoping that some lines on the chart can tell me the future trend of stocks. At that time, everyone was doing this, so I followed suit. Sometimes I would flip the chart upside down, but it didn't work."

It wasn't until 1949 that the 19-year-old Buffett read Benjamin Graham's 'The Intelligent Investor.' Two chapters in the book laid the foundation for his investment philosophy, very concise, yet extremely important.

Buffett summarized it as three most important investment principles for himself.

Let's revisit how Buffett described it in this conversation:

The first principle is to understand the nature of stocks.

Stocks are part of business ownership.

You can't see stocks as mere symbols, but need to understand the businesses behind them. What are its economic characteristics? Who are the competitors? How is the management?

All of this is related to the business, not just simple stock codes.

The second principle, how to deal with stock market fluctuations.

In chapter eight of the book, Graham introduced a fictional character called "Mr. Market". This metaphor is the best description of how investors should handle stock price fluctuations.

Most people react incorrectly to stock price fluctuations. They become ecstatic when their stocks rise and feel discouraged when they fall.

The stock market is not here to teach you, but rather a "Mr. Market" with whom you do business. He comes every day to tell you at what price he is willing to buy your stocks or sell you more stocks.

You do not have to trade with him every day unless it benefits you. You only need to take action when his mood is extremely low or exuberant. The beauty of the stock market is that it occasionally offers you such opportunities.

The most wonderful thing is the metaphor of "Mr. Market". He gives you quotes every day, with prices changing daily and sometimes significantly within a day. The advantage of this person is that he is essentially an irrational alcoholic manic depressive. He wanders around, observes crazy things, and then offers you various unreasonable prices.

You can completely ignore market quotes unless they are favorable to you.

Whether the opportunity comes once a year, once every five years, or whether out of three thousand stocks there is only one suitable one, you just need to be patient and wait.

You have no moral responsibility to this "Market Master", the price he quotes is not what you asked for, but what he decided to offer, you just need to catch him when he is feeling particularly low, excited, or drunk.

There will be those moments in the market, and what you need to do is to take advantage of them.

This is the wonder of the stock market!

If you look at the data from the past year, you will find that the difference between the high and low points of many American company stocks can be double. Even if these companies operate steadily, pay employees' salaries as usual, and sell commodities, the stock prices can still fluctuate so dramatically.

If you go to see a farm ten miles away, its value cannot double from x within a year. It may increase from x to 1.1x, or the other way around.

If you go to see nearby apartment buildings and check the price fluctuations of similar apartment buildings within a year, the price will not fluctuate by more than 10% in a year.

But the stock prices of the best American companies fluctuate wildly. You don't have to participate unless you think it benefits you. That's the key!

As Graham said, the market is not there to teach you, it is there to serve you when you need it.

There are many emotional factors that people have towards stocks, but stocks do not know that you own them.

You sit there holding Berkshire Hathaway's shares, and Berkshire Hathaway doesn't even know you are a shareholder, and the shares do not know either.

Stocks are currently trading, and neither the company nor the stocks know that you own them.

Stocks have no emotions, but you have various emotions towards them.

Stocks are just a part of ownership in the business. If Berkshire Hathaway's value is $0.075 million multiplied by 1.5 million shares, about $110 billion, then it is a good investment. If not, it is a bad investment.

You must evaluate the company.

Surprisingly, few on Wall Street do this. You may hear discussions about price targets, but you rarely see anyone writing research reports discussing what the essence of this business should be in the next 20 years and how much it should be sold for, rather than how much it is selling for now.

In fact, I often like to analyze investments without knowing the price.

When I receive some financial statements or a 10K report of a company, I would rather not know the price, as it could influence you.

If you focus only on these reports without knowing the price, you will do better.

When I studied horse racing in my childhood, I would first look at the race data without checking the odds.

Assuming there are nine horses in the race, the probabilities of winning must add up to 100%. Then I would compare these probabilities with the odds. The stock market works the same way.

The third principle is margin of safety.

If you drive a 9800-pound truck and come to a bridge with a capacity of 10,000 pounds, would you continue? Perhaps you would seek a safer bridge.

You don't know the actual capacity of that bridge, maybe the sign was put up three years ago. Therefore, you always need to leave a margin of safety.

The same is true in the stock market. Do not approach the edge of risk, but wait for a clear opportunity to act.

Through these principles, you can develop various investment strategies, but these are the basics.

If you understand these, as taught in "The Intelligent Investor", you will have a solid investment philosophy.

I have never found any other book that can compare to it.

Everyone always wants that 'most important advice'. I wish there was a simple answer that could solve all problems. But if I really had to give advice, I would say those three principles mentioned earlier.

If you really can keep them in mind, and filter through these principles with every investment decision you make, then you will not make bad investment choices.

Treat stocks as a business, the market is here to serve you, not to command you, and always maintain a safety margin. If you assess every decision based on these principles, you won't make mistakes.

Editor/Somer