In the previous"after reading this article, it is enough to read whether to buy a stock or not."In this article, I mentioned the magnificent "beautiful 50" market of the US stock market from the late 1960s to the early 1970s.

In the comments of the article, a reader asked a very good question:

"what was Buffett doing in the beautiful 1950s? "

At that time, I realized that this was a very good question, so I went to check the information, and sure enough, I found something very interesting. Today, I will talk to you about this topic.

Before we begin, I would like to thank the student who asked the question. in my opinion, a good question is always much more valuable than a good answer.

First of all, let's review the background of the "beautiful 50" market:

The so-called "beautiful 50" does not have an academic or official definition. In fact, it generally refers to the 50 outstanding white Malone shares in the United States from the late 1960s to the early 1970s.

At that time, there were different versions of which 50 companies "Beautiful 50" were, but basically all of them included:

Coca-Cola Company, Walt Disney Company, General Electric Co, IBM, Johnson & Johnson, McDonald's Corp, 3M Company, Procter & Gamble Co, American Express Co, Budweiser.

To this day, many of these companies are still familiar and second to none in the industry. You must have heard of many of these companies.

At the end of 1968, these stocks began their own performances.

Since November 1968, the "beautiful 50" index has risen 19%, while the s & p 500 has fallen by as much as 30% over the same period. Then "beautiful 50" fell slightly, but the decline was still lower than the overall level of the market.

In the new rally since June 1970, the "beautiful 50" index rose as much as 96%, far outperforming 53% of the s & p 500 over the same period.

Many people have made a lot of money in this market.Many people began to advocate that "good companies should have high valuations", "looking at the next 20 years, buying is still not expensive", "value investment is immortal".

So these stocks have big names--

"beautiful 50".

At that time, the market atmosphere was as if buying a good company could make money without a brain, and a good company would always rise, and the investment was so simple.

You may already feel that there is something wrong with the atmosphere, and yes, the turning point in the stock market often occurs when everyone thinks "this time is different" to let everyone know that it is the same every time.

Soon, the plot took a sharp turn for the worse:

In 1972, the "beautiful 50" peaked with the market, and then fell with the market. Although the overall decline of the "beautiful 50" was smaller than the market at the beginning, the "beautiful 50" began to fall at the end of 1973 and lost the market as a whole.

In the eight or nine years since then, the "Beautiful 50" has lost the market in an all-round way and has become the object spurned by investors.

According to Professor Siegel, author of the long-term Magic of the Stock Market, from December 1972 to May 1995, the annualized income of these 50 companies was 11%, while the overall market return was 11.2%, almost no difference.

Here is another comparison between the "Beautiful 50" from Guoxin Securities Research Institute and the historical trend of the US stock market:

Do you have a sense of deja vu when you see this?

And that's why we're talking about this topic today--

The "beautiful 50" market at that time was much like what happened in A-share today!

Over the past few years, Maotai, Wuliangye, Haitian, Hengrui, Zhongmian, Muyuan, conch …... The performance must have been seen by everyone.

And the market's pursuit of these stocks, those always optimistic views, is it the same as the "beautiful 50" era of the American market?

I have counted the performance of A-share stocks with a market capitalization of more than 20 billion in the past four years, and selected the best 50 of them. As shown in the figure below, is there a "oriental beautiful 50"?

So here comes the problem at this time--

As the spiritual leader of the value investment school, the person who knows how to buy a good company in the world--Buffett, what has he been doing in the four years since the outbreak of "Beautiful 50"?

Has he grasped this magnificent market and has since established his position in the pricing world?

If so, which companies did he buy, and how did he escape the "beautiful 50" bear market after that?

Let's find out the answer first--

During this period, Buffett completed the transformation from an excellent "cigarette butt" investor to an investment master.

What he did during this period laid the foundation for the future expansion of the Babbitt Empire. It can be said that this transformation determines whether Buffett is a good investor or a great investor in the end.

First, in 1968, Buffett completed arguably the most important investment since he worked with Munger.Blue chip printing companyIt's an investment.

Briefly talk about the business model of the blue chip printing company. The company issues a kind of "gift exchange coupon", that is, the so-called "stamp", and then sells it to various gas stations and supermarkets, where these merchants give consumers some "stamps" in the process of consumption. when consumers accumulate a certain amount of "stamps", they can go to the blue chip printing company to exchange the corresponding prizes.

To put it bluntly, it is now our common "points exchange" business.

Of course, the "stamp" is not in vain. If you want to get the "stamp", you have to pay for it, or recharge an advance payment from a blue-chip printing company. It is equivalent to that the customer has paid the money first, and the blue-chip printing company can deliver the goods after a period of time.

It sounds mediocre now, but it was a very new business model at the time. It was 1968.

At the same time, blue-chip printing was monopolized in this business. It was jointly founded by nine major retailers in the United States at that time, as well as giants such as Chevron Oil and California food chain. Basically, the points exchange business of major retailers in the United States at that time was done by blue-chip printing.

With all that said, you may not quite understand what this mediocre-sounding company means to Buffett.

First of all, this is Buffett's first most transformational investment after realizing the limitations of the investment method of "picking up cigarette butts".

This represents the transformation of Buffett from "picking up bargains" to "buying monopolies" and "buying good companies".

Buffett said early on that 85% of his investment system comes from Benjamin Graham, the teacher who taught him how to pick up cigarette butts, and 15% from Fisher, who is good at investing in growth stocks.

For the investment of blue-chip printing companies, Buffett has taken an important step in this transformation.

And it was Munger that prompted him to take this step, and this pair of arrogant couples, because of this investment, really came together.Yes, although they had frequent contacts before that, they were still on their own in terms of investment.

A more far-reaching significance of this investment is that it established the most important weapon of the Pasteur empire.Floating deposit modelThe basis of.

The so-calledFloating deposit is actually a kind of lever.For example, the insurance premium paid by customers in advance and the advance payment paid by customers of blue-chip printing companies when they buy "stamps". No, no, no.

Before it is spent, the money is equivalent to what others "lent" to Buffett, but does not charge interest, and even gives Buffett interest (such as the profits of insurance companies and blue-chip printing companies).

For investment gurus like Buffett, this cheap and safe leverage undoubtedly magnifies his investment ability quickly.

Later, Buffett frantically bought companies with float, and then used it to buy more companies with float, and then used it to buy.

The territory of the Pasteur empire expanded rapidly with the wild advance of the chariot of "floating deposit".

And then in 1971, the best performance of "Beautiful 50", Buffett completed another familiar masterpiece--

Xi Shi candy.

"Xi Shi Candy" is known as the "happy poem printing machine". Its huge brand moat and pricing power ensure that it can get a lot of cash flow, which can be said to be the best business model.

This is another typical Munger and Fisher investment, and it also lays the foundation for Buffett to buy companies with good cash flow and use the money to buy more such companies.The representative work of "buying monopoly" + "floating deposit" model.

And this deal.It was Bill Ramsey, president of the blue chip printing company at that time, who introduced it to Buffett.

Xi Shi candy has been held by Buffett so far, and he says it is a "collection" that he will not sell in his life.

At the same time, in 1969, during the "pretty 50" performance, Buffett did another very important thing--

Shut down the investment partnership and founded Berkshire Hathaway.

As we all know, Buffett's group is now called Berkshire Hathaway, but many people may not know the origin of its name.

In fact, it comes from Buffett's stroke.FailInvestment--

Berkshire Hathaway Textile Co.

You read it right. It was a failed investment.

In 2010, CNBC held a forum in which five star investors were asked to talk about it.The worst deal I've ever made. At the time, Buffett was talking about the Berkshire Hathaway deal.

In a nutshell, according to Buffett's calculations, the company's book value (similar to net worth) was $19.50 per share, but the company sold it at $7.50 (broken net, similar to a price-to-book ratio of 0.38).

Buffett feels that he has picked up a big bargain, which is typical of Graham's "picking up cigarette butts" investment.

But soon, with globalization and industrial upgrading, America's textile industry declined rapidly, selling assets ever since Buffett took over textile mills in 1965.It was only then that Buffett realized that the assets on his books were just a number, but they were worthless.

For example, at the time, the book value of all the machines at the Berkshire Hathaway factory was $13 million, but when they were liquidated, they sold for $160000, deducting the last penny of the liquidation cost. A few years ago, no one asked for a spinning machine that cost $5,000, but it was eventually sold for $26, not even enough to pay the porter.

At this point, I wonder if those who think that buying a bank is a big bargain have ever thought about how much the bank's net assets are worth.

By 1969, Buffett had seen that the value of other assets that had been incorporated into Berkshire Hathaway over the past four years, such as insurance, banking and newspapers, had far exceeded that of the textile industry, which accounted for a negligible share of the company.

At the same time, U. S. stocks because of a magnificent bull market, Buffett also felt that the U. S. stock bubble is already very big.

As soon as the two ideas were combined, Buffett simply shut down his previously managed investment partnerships and textile mills worth more than $100 million and integrated many of his assets into Berkshire Hathaway's platform. Berkshire Hathaway has since officially set sail and gradually become today's aircraft carrier.

Berkshire Hathaway's failure made Buffett finally give up Graham's "cigarette butt" investment method, superimposing the investment in blue chip printing and happy poem candy that we mentioned earlier, it can be said that--

Buffett evolved to the 2.0 stage of the "buy great enterprises at a reasonable price" + "float" model, which, in his own words, "evolved from orangutans to people".

And what are most of the rest of the market doing when Buffett completes his great transformation?

Speculation "beautiful 50", take advantage of the bull market to enter the market, imagine the "beautiful 50" and the bull market will continue forever, "this time will be different" dream.

It is said that Buffett is the best person to buy a good company, and the "beautiful 50" is also the most Buffett-style stock in the eyes of many prices, and in the "beautiful 50" market, not only did he not chase these stocks, but--

Shut down your own investment partnership!

Because I think the bubble is too big!

And when did Buffett really buy these big white horses?

In 1985, buy Metropolis / ABC

Buffett bought Freddie Mac in 1988

In 1988, Buffett bought Coca-Cola Company

In 1989, Buffett bought Gillette razors.

It was all in the middle and late 1980s, more than a decade or two after the "Beautiful 50" bubble in the late 1960s and early 1970s.

Seeing here, I don't know if you have any new understanding of value investment and Buffett.

Value investment is not to chase hot consumer and pharmaceutical stocks, not to pick up cheap broken bank stocks, not to engage in industry discrimination in the name of learning from Buffett.

All these are just copycats and Handan learning to walk.

I don't know what the future will be like--

But look at the valuations of leading white horse stocks such as Maotai, Haitian and Hengrui and how people chase hot stocks by shouting value investments and shouting, "this is different."

Look at Buffett's failure at Berkshire Hathaway, and now silver fans' fanatical belief in bank stocks.

Look at the fate of US stocks after "Beautiful 50".

Look at Buffett's gorgeous turn, and how he, as the spokesman of "Beautiful 50" in everyone's eyes, is in reverse with the market in the era of the outbreak of "Beautiful 50".

I want to,Always curious, always reflect, always evolve, always calm, always dare to go against the market, and--

Always buy enterprises that really create "value" at a reasonable price.

This is the true meaning of value investment.