Buffett and his partner Charlie Munger's speeches at the shareholders' meeting for more than 30 years have been compiled into the book "Buffett and Charlie Munger's Internal speech", from which we have sorted out ten proverbs, which record several pieces of their investment wisdom. There is also a philosophy on the way of life, which is of great benefit to both professional investors and ordinary people.

The Investment Wisdom of Buffett and Charlie Munger

1. Cash is king, ready for better risk and reward opportunities

Buffett, the god of stock, pays great attention to cash flow when choosing the subject of stock investment, and has already left a famous conclusion: "Cash is oxygen, 99% of the time you will not pay attention to it until it is gone." "

At the end of 2019, Berkshire held nearly $130 billion worth of cash reserves and held more than 50% of its stock holdings, which was seen as a drag on performance and sparked dissatisfaction from some shareholders who thought Buffett had missed a brilliant bull market.

But now, under the influence of the epidemic, the financial market continues to panic, which once again proves that Jiang is still old and spicy, and the stock god is still the stock god. Large amounts of cash can be used to pay for insurance claims and investments in the most extreme cases.

Cash helped Buffett as early as 1965 when he took over Berkshire, then a small textile company.

At that time, Berkshire's business was depressed and Buffett didn't know how to run it. Later, he joked that it would be wiser to take the money and go away.

The textile company has proved to be an ideal investment medium. Thanks to Berkshire's stock, Buffett got a listed company with limited funds, a corporate structure that has a clear advantage in money management.

In a former partner company, once the shareholder redeemed the stock, the company had to cash it and suffer a loss. Today, even if shareholders sell Berkshire shares, it will not affect the company's available capital. As long as Buffett does not pay dividends, the capital will still be owned by the company. He can use these stable and restricted funds to make long-term investments: wholly-owned acquisitions or partial acquisitions of shares in the company. Berkshire's corporate structure makes opportunistic investment in special circumstances possible.

Buffett gradually cancelled the company's textile business. He sold his assets and got more cash. It was with this cash that he began to build his own wealth machine.

In Buffett's view, neither stocks nor long-term bonds can set a sufficient margin of safety or exceed the expected return of 5% on risk-free Treasuries. It's best to hold on to cash and prepare for better risk and reward opportunities.

two。 Any investment is a value investment.

As early as the 1992 shareholders' meeting, Buffett mentioned that the distinction between growth investment and value investment is ridiculous.

Any economic activity has only one purpose, and that is value. To calculate the expected return, you only need to calculate the discounted value of cash flow between now and the end of the world. To do this, you must: ① determine the flow and liquidity of cash flow; ② choose the discount rate.

Buffett stressed in particular that the expansion of the company's size can increase expected earnings, but it may also have a negative impact on expected earnings. For example, power plants were forced to expand in the 1970s and invested a lot of money, but their profits declined.

Interestingly, Buffett, who now loses a lot of money in cut-meat aviation stocks, has stressed at this shareholders' meeting that the blind expansion of airlines has sentenced American investors to death. Since the expansion of Eagle Airlines, the industry has been losing money every year. You have to look for investments that will allow you to make money instead of losing money.

Munger added that if we study the case of airlines, we will find that the fixed costs of such companies are high, their products are easily replaced by the products of other companies, and the intensity of competition between enterprises can be imagined.

Buffett also stressed that book value plays little role in analyzing corporate value. The book value records the input of the enterprise, and the key to calculating the value is to determine the income of the enterprise.

Buffett explained that investing in companies is like buying bonds with blank coupons that have not yet matured. You have to judge how much money coupons can make. The more accurate the judgment, the wiser the investment will be. If you're not sure how much money you can earn on coupons, don't invest your money in such an enterprise.

In 1995, when talking about Berkshire's $358 million purchase of preferred shares in US Airways, which shrank to $268 million, Buffett pointed out that there was no need to lose it and get it back.

'gamblers often make mistakes, and if they don't stop, good things will pass them by, 'Mr. Munger said. Buffett focused on summing up his reason rather than emotion: "stocks do not recognize their owners, how much you pay, who recommends it, and how much others pay."... Stocks don't matter at all. "

Real investment is more like gambling. You have to find a bet that should have doubled but tripled the actual bet. Value investment is looking for a "mispriced bet".

3. The market provides services, not guidance.

Buffett has repeatedly told participants at shareholder meetings to remember that the market provides services, not guidance. The more unpredictable the market, the more real investors can profit from it.

Charlie Munger advocates the development of a temperament that is "not tired of holding securities". If you care about price, you have to believe that the stock market knows price better than you do. If you care about the value of the business rather than the price, you can sleep better.

If the stock market is closed for five years, the Acme Brick Company must still be selling bricks and the Dairy Queen must still be selling Dili bar ice cream.

They think that investing is more like betting on the same lottery, as long as you don't suffer heavy losses, you only need to bet on it a few times. Munger points out that most financial institutions do the opposite, sending large research departments to track all the companies in the S & P 500.

Instead, Buffett says he only needs one or two good ideas a year. Buffett tried to imitate the great batter Ted Williams, who understood that he was successful because he had the temper to wait for a slow ball to play.

4. Be timid when others are greedy, and greedy when others are timid

Buffett once pointed out in Berkshire's annual report:

In the investment community, the two major infectious diseases of timidity and greed break out from time to time, but the timing of their emergence is unpredictable and the resulting market imbalances are also unpredictable, which are all closely related to the persistent cycle of the disease and the intensity of the outbreak.

Therefore, we never waste our time predicting when the disease will come and when it will be cured. Our method is very simple. We only need to be timid when others are greedy and greedy when others are timid.

As a result, Wall Street is never timid. On the contrary, there is laughter and laughter here. Why is this? Business is bad, but bosses are making a lot of money in the bull market. What could be more exciting than this? Unfortunately, stocks will not always be more prosperous than the company.

5. Money should be spent on good companies and invested more in companies with real materials.

Mr Buffett noted that about 20 per cent of Berkshire's perspective profits came from abroad, with Coca-Cola Company at the top of the list.

Every day, everyone drinks 64 ounces. In 1991, soft drinks accounted for 25% of these 64 ounces, far more than water, and was the largest drink in the United States! This means that every American drinks about 730 cans of soft drinks each year, about 42 per cent of which are from Coca-Cola Company. Consumption patterns of soft drinks in other parts of the world are strikingly similar, and sales of soft drinks are still on the rise.

Buffett points out that this is why he doesn't care much about macro factors, and that holding the right company in his hands is the key.

Coca-Cola Company went public in 1919, when the share price was only $40. Coca-Cola Company's share price plummeted to $19.50 in 1920 due to fluctuations in sugar prices. After more than 70 years of war and depression, Coca-Cola Company's share price has risen from $40 at the beginning to $180 now (with a compound annual return of about 16%).

Instead of predicting the economy, it's better to take the time to see if the product can survive.

Buffett and Charlie Munger's philosophy of life:

1. The best investment is yourself.

At several shareholder meetings, Buffett stressed that the best project you can do is to invest in yourself.

He once gave an example: imagine if an elf came to a 17-year-old and promised him a car he wanted, but on one condition-no matter which car he chose, he had to let it die.

As you can imagine, in order to drive a car for 50 years, the young man must have read the user's manual 10 times and changed the oil twice as often as normal.

Each of us gets a pair of body and wisdom in our life. We can't repair them until we are 60. We must take good care of them.

A man's greatest asset is himself. When you are young, you should think more and cultivate good living habits in order to make your life better. If not, you might die at the age of 70.

Buffett believes that few people can realize their full potential in their lifetime. People's potential is often much greater than their current ability.

Buffett himself has invested a lot of energy in himself, reading all the year round and living in the Omaha Public Library for four years. He devoted time and money to learning communication skills, and good communication skills greatly improved his life. So Buffett's important point is to cultivate himself. Find what you are interested in and improve your ability.

And Charlie Munger also thought he should give himself a spiritual compound interest. He decided to sell the best time of the day to himself to improve his way of thinking, and then sell the rest of the time to the rest of the world.

two。 Lifelong learning and acceptance of criticism

Charlie Munger often praised Buffett's strong desire to learn, calling him a "learning machine". Learning has nothing to do with age, but a game. Although Buffett is older and more knowledgeable, he is still learning, which is one of his greatest qualities.

Buffett also thinks he wants to pick up and read everything he sees. Good investors should read everything, he suggests.

For himself, he read all the investment books in the Omaha Public Library at the age of 10, some of them twice.

"keep your brain competitive and find out what you want to do. Then you have to go into the water-take some money and do it yourself. He joked that talking on paper is like reading a love novel, and having sex are two different things.

Munger admitted that Buffett is the most rational person he has ever met, and that Buffett's ability to learn is crucial to Berkshire's success.

In addition, Munger believes that their ability to accept constructive criticism is the key to Berkshire's success. "Berkshire is built on criticism," he admitted. "

He recalled that he and Buffett were going to turn around and leave if the seller asked for more than $100000 in negotiations for the candy. Ella Marshall said it was unreasonable for them to do that and that they should spend more money for good quality.

Marshall was right. Since paying $25 million for candy in 1972, the company has earned Berkshire more than $1 billion in pre-tax income. If you give up the deal for a paltry $100000, it will be a heavy loss.

3. Do what you can, so you don't lose a lot of money.

Buffett, the god of stock, is also an ordinary person, and he made an interesting point: do what you can, so you don't lose a lot of money. He didn't think his best idea was any better than others', but his worst idea didn't cost him much.

When asked about the wisdom of accumulating wealth, Buffett replied: spend less than you earn, know and only do what you can. Only the companies in which you invest are the only companies that matter. Keep learning. Don't throw in the towel. Insist on keeping the margin of safety.

For example, Buffett only cares about enterprises that he is familiar with and can be controlled. Buffett missed Microsoft Corp, Amazon.Com Inc and Alphabet Inc-CL C because he did not understand technology stocks. At Berkshire's 52nd shareholders' meeting, Buffett half-joked that he did not invest in Amazon.Com Inc "because he was so stupid."

Only by seeing your own "stupidity", knowing the boundaries of your abilities, and not being disturbed by others and the market, can you return to rationality and avoid losses. These are not only investment philosophy, but also wisdom of life.

4. Do what you like and work with the people you like

Buffett was asked if he had any advice for MBA graduates.

Buffett said: "do what you like, work with the people you like, as long as you can do these two things, you can't be wrong."

Buffett feels very lucky to be able to discover what he really loves early. He recalled reading a lot of his father's investment books when he was a child before he realized what he wanted to do.

He pointed out that the biggest mistake in life is mediocrity and perfunctory. The ideal life should be to work for a job you are willing to give for free.

Running Berkshire is the most interesting thing in Buffett's life. So Buffett advises everyone to do what they are interested in. Charlie Munger agreed that he couldn't do anything he wasn't interested in.

And this is reflected in the investment, but also to find people with inner strength. Buffett quoted Emerson as saying: "the power in your heart is a new force of nature after all." "

One of Buffett's famous investment cases: Nebraska furniture store. Its founder, Ross Bloomkin, is a natural force. Ross Bloomkin, an old lady who didn't go to school, turned $500 into a 78-acre, $400 million Nebraska furniture store. She was full of energy in her work and worked until she was 103.

Buffett told everyone that nothing is more important than following his passion. This is what Berkshire's outstanding managers have in common-they love what they do.

5. Make friends with people who are better than you and walk with wise people.

Buffett once said that you'd better hang out with people who are better than you. Partner with good people, and you will unwittingly go in that direction.

Buffett and Charlie Munger met in 1959, and since then they have become friends, creating the greatest investment record ever.

At the same time, Buffett advises people to make a list of the qualities they expect their friends to have, and then allow themselves to develop them slowly. He stressed that this is a matter of choice and has nothing to do with DNA. Anyone can develop good character and living habits.

Munger chimed in that they knew some businessmen who had successful careers but had no friends. That's true. "you can't live like this. "he concluded.

Reading more books is also a good way to make friends. Asked what books he likes, Munger replied that he loves biographies and strongly recommends that people read biographies to "make friends with great men who have passed away." Buffett quipped: "they never talk back." "

Munger went on to say that books let you make friends with all kinds of people, and even make more good friends.

Amazon.Com Inc CEO Bezos once asked Buffett in an interview why others couldn't succeed since his investment philosophy was so simple. Buffett replied: "because no one wants to get rich slowly." "