The book for you in this issue is “The Psychology of Money: The Eternal Truth about Wealth, Greed, and Happiness.” The book’s author, Morgan Hauser, is a former financial columnist for the Wall Street Journal and is now a partner at the Partnership Foundation. This is not a book about investment and financial management techniques, nor does it spend a lot of space explaining financial knowledge. Instead, it discusses investment and wealth management from a psychological perspective. Hauser likes to use data to explore the impact of big trends on individuals through a macro perspective. He has a keen insight into the psychological state of investors. This book not only provides novices with concise and easy-to-understand financial management guidance, but also helps experienced investors re-examine their original intention of entering this field and break out of the traditional framework.
People always regard investment and financial management as a hard science, but ignore the important role of psychological factors in it. In fact, financial management behavior does not rely solely on cold mathematics and formulas. It is often affected by your emotions, preferences, positions and many unexpected factors. Therefore, the key to getting rich and staying rich does not lie in how much knowledge you know or how many rules you have summarized, but often in how to overcome the weaknesses of human nature and understand the essence of how things work. In the ever-changing field of investment and financial management, some principles remain unchanged and can help you achieve stable growth of wealth at any time. Only by discovering them and grasping them can you achieve long-term prosperity and happiness in the fluctuating economic situation.
This lecture is divided into three parts, which are the core ideas of the book, counterintuitive financial management principles, and how to find the investment logic that suits you.
The core ideas of “The Psychology of Money”
1. Your behavior affects your relationship with money
The core idea of the book “The Psychology of Money” lies in the influence of “people” themselves on wealth. What determines a person’s relationship with money is often their behavior rather than their intelligence and knowledge. Next are two real cases,
The old man in the picture, Ronald James Reed, was an ordinary man. He worked at a gas station for 25 years and then as a janitor at a shopping mall for 17 years. He lives a normal life. He lives in a small house that he bought for $12,000 when he was thirty-eight years old. His biggest hobby is chopping firewood. Reed died in 2014 at the age of 92. That day, this ordinary old country man made headlines around the world. He left an estate of $8 million. In his will, he left $2 million to his stepchildren, and the remaining more than $6 million was donated to local libraries and hospitals.
What is the concept of an inheritance of $8 million? In 2014, more than 2.8 million people died in the United States, of which less than 4,000 had a net worth of more than $8 million. Reed didn’t win a lottery ticket or inherit a large inheritance, and he didn’t have any fancy ways to make money. He saved his meager income and continuously invested it in the stock market, buying blue chip stocks. He did not have superb stock trading skills, but just waited for a long time. Over the decades, these small savings continued to grow through compound interest, and finally snowballed into a huge sum of more than 8 million. Reed is a common man and a philanthropist.
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In the months before Reed’s death, a man named Richard Forsken also made headlines. The opposite is true for Reed, who graduated from Harvard University, holds an MBA, and serves as an executive at Merrill Lynch. When he was in his 40s, Fosken felt that he had earned enough money and decided to retire and bought himself a large 18,000-square-foot house with 11 bathrooms, 2 elevators, 2 swimming pools and 7 car garage. The monthly maintenance cost of this house is $90,000. But Fosken couldn’t actually afford such a big house, so he took out a large loan. As a result, in 2014, Fosken had to sell the house because he could not repay the loan. He sold the house for less than a quarter of what he paid for it.
What does the story of these two people illustrate? The first is luck.Extreme success depends largely on luck.In another era and country, Reid’s investment strategy may not have been so successful. Despite this, I believe everyone understands that investment and financial management are not entirely dependent on luck. Good luck can only be the east wind in a successful investment, not the last resort.
But Forsken’s story illustrates that simply “understanding” theory and technology is far from enough. He knows investment skills well, but he is not good at managing his own property. It’s like a large number of “smart people” pouring into the stock market, making a lot of money quickly and losing it all quickly. Financial management is a special knowledge, and only in the field of investment and financial management, a person who has not gone to college, received no training, has no background, professional experience, and no social connections can overwhelmingly defeat a person who has received the best education. People with education and professional training and strong connections. Ronald Reed was patient, while Richard Forsken was greedy. This was the fundamental reason why the disparity between their educational backgrounds and financial experience was bridged.
Economists at the National Bureau of Economic Research have written: “The willingness of individual investors to take risks depends on their early experiences.” What plays a role in investment decisions is not education or experience, but the time, place, and family where they were born. The environment is a factor determined purely by luck.
2. Your past affects your understanding of money
Hauser believes that a person’s experiences as a young person greatly influence a person’s investment decisions. Just like people always tend to listen to their favorite music in their teens and twenties, and miss the taste of childhood in their memories; a person’s cognition when he was young has an impact on his life-long behavior. A large part of whether you are willing to make the stock market your primary investment comes from the performance of the stock market when you were young.
The two lines on the chart show the direction of the stock market between the ages of 13 and 30 for people born in 1950 and 1970 respectively. For people born in 1950 (gray line), stocks did not rise at all during their teenage years, and there were no stories of people who got rich overnight through stock trading. Naturally, they would not be too enthusiastic about stocks. People born in 1970 (black line) saw the entire stock market rise tenfold in their youth. Despite occasional fluctuations, it has been rising. A large number of people have made a lot of money from the stock market. This generation will be more convinced that investing in stocks is a good business. This entire generation will almost have a similar perception. But the stock market is not driven by individual retail investors, but by rational institutions without personal emotional preferences.
This chart shows the inflation rate in the United States. People born in 1960 spent their youth watching the dollar lose three times its value and prices continue to skyrocket. They will think that it is very foolish to deposit money in the bank or buy financial products with low risk and low interest rate. But people born in 1990 have never seen soaring prices. They have the impression that “money is valuable” and choose to buy financial products such as bonds.
Although the data records the historical development that each generation has seen, only personal experience can build a deep enough understanding. Just like electronic statements can simulate a stock market crash, they can never simulate the anxiety of a person thinking to his family whether he has made a mistake that could ruin their lives. Another example is lottery. It may be hard for you to imagine that Americans spend more money on lottery tickets every year than on movies, games, music, sports, and books combined. So who is the favorite person to buy lottery tickets? poor. Most Americans are not wealthy, and 40% of them cannot afford an extra $400. So how much does the average household spend on lottery tickets per year for people with the lowest income? $412. In other words, these poorest families spent all the remaining money at home, the little money that could have been used to provide security, to buy lottery tickets.
You may think that they are so irrational that this behavior can be called crazy. But in fact, our seemingly ordinary life is unimaginable to these poor people. They cannot save money at all with their meager income, and they have no way to cross class. Buying lottery tickets may be one of the few ways they can realize their dreams. .
No one really loses their mind when it comes to money. Behaviors that are not understood are just different choices made from different perspectives and experiences.
3. It is difficult for humans to adapt quickly to new things
People are more willing to choose things they understand, and it often takes a long time to adapt to new things. Although everyone now knows that saving money in a retirement account and planning for old age is a wise choice, not every elderly person saves for retirement. This is because the concept of “retirement” itself is new. The picture on the left shows the proportion of men over 65 years old in the United States who are still participating in the labor force in recent years. It can be seen that it was not until the past 50 years that the entire retirement pension system was complete enough for the elderly to live on pensions.
Another example is credit cards. We often see in the news that some people are trapped by excessive consumption and lead to tragedies. This is also because loan consumption is also a new thing, and people have not yet integrated it into our lives well. In the face of new things, some people will be too conservative and don’t borrow what they should borrow; other people may lose control and borrow what they shouldn’t. In fact, everyone has no experience.
Counterintuitive financial principles
-Persistence is the secret to success
I believe everyone is familiar with Buffett’s story. As of this year, his worth exceeds US$110 billion, which is an incredible astronomical figure. And Buffett’s biggest secret is persistence.
Let’s do a calculation: Suppose that when you are 30 years old, you suddenly have the same investment ability as Buffett. After that, your assets will rise by 22%. Let’s also assume that you enter the market with $25,000. It’s not a lot of money, but it’s not too little for a 30-year-old rookie. Your investment level is so high, but people can’t just make money… so you decide to work until you are 60 and retire to enjoy life. Reasonable, right? Okay, so let me ask you, how much money will you have by the year you retire?
The answer is $11.9 million.This number is not high, and it is not enough for you to live a life of spending money like water for the rest of your life. There are many people in the world with assets exceeding $10 million. This is not a miracle. Buffett’s real power is not that he can grow his assets by 22% every year. He didn’t work from 30 to 60. He started trading stocks when he was 10 years old and is now 90 years old. He didn’t work for 30 years, he worked for 80 years. When Buffett was 30 years old, his assets were only about US$1 million, which is about US$9.3 million today. Of his assets of more than 100 billion, 99.5% were earned after he was 50 years old, and nearly 97% of them were earned after he was 65 years old. Buffett, 50, is just an ordinary rich man. At 65 years old, note that this is the general retirement age in the United States, Buffett is not enough to attract the attention of the world.
Buffett’s real secret to success is that he keeps living and investing.
-Luck can make you make money, but it can also make you lose money
There is a particularly famous stock trader in American history named Jesse Livermore. Born in 1877, he already had a fortune equivalent to $100 million today by the age of 30. In 1929, when Livermore was 52 years old, he caught up with the great stock market crash in the United States. On October 29, all kinds of bad news came one after another. Several experienced stock traders committed suicide by jumping off the building. Livermore’s wife, mother and children were all very worried at home, looking forward to his return home for fear that he would also jump off the building. Turns out Livermore is back. He told his wife that not only did he not lose money, but he also made money. Purely on instinct, he shorted the stock market that day. Livermore earned the equivalent of $3 billion in today’s dollars that day.
One day, $3 billion.
You might think that with so much money to spend in a lifetime, Livermore could just retire. Livermore was a man with an adventurous spirit, which allowed him to make a lot of money and allowed him to continue to invest in the stock market. He specialized in such risky ventures, and only four years later, in 1933, he was bankrupt. After living a boring life for a few more years, he finally committed suicide.
Livermore uses a completely different stock trading method from Buffett. His method can sometimes make money, and he can make a lot of money in a short period of time. Compared with Livermore, what Buffett did may only be called “preserving money.” Getting rich depends on luck, optimism, and willingness to take risks, while staying rich requires avoiding taking risks, being extremely humble, and having fear.
-You can succeed even if you make mistakes half the time
This chart shows the real growth of U.S. per capita GDP at comparable prices during the 170 years from 1850 to 2010. The line appears to be very flat, rising almost steadily except for the Great Depression of the 1930s. Doesn’t it look like a very good investment?
In fact, a lot has happened in these 170 years. 99.9% of companies are gone. The United States has experienced 33 economic recessions, and these 33 recessions lasted a total of 48 years. There were 102 times when the entire stock market fell by more than 10% from the previous highest point, and there were 12 times when the stock market fell by more than 1/3.
The economic status of the United States today is not the result of stability and development at all, but has gone through hardships and hardships. From a distance it looks calm, but in fact every twist and turn is thrilling. The GDP per capita curve is very smooth because it is the result of a combination of all successes and failures. There is a mathematical principle here. For this kind of exponential growth that combines countless successes and failures, the average of the market is always better than most people.
Portfolios have quite strong tail effects. Although most projects are often unsuccessful, a few extreme successes will bring almost all benefits, which is the 80/20 rule often said in investment.
When it comes to Heinz Berggruen, many people may not know much about him. He can be called one of the most successful art dealers in history.
In 2000, Berggruen half-sold and half-gifted some of his collection of works by Picasso, Braque, Klee and Matisse to the German government for more than 100 million euros. The market value of these works of art was Over a billion. It is really shocking that one person can collect so many masterpieces of art, so how did he foresee that these works would increase in value in the future? In fact, good investors will buy a large amount of art, and 99% of these paintings may not appreciate in value in the end, but as long as 1% is a world-renowned master like Picasso, then the investment is very successful.
Let’s go back to Buffett. Everyone knows his stock picking ability, which is definitely top-notch. Buffett said at the 2013 shareholder meeting that he probably owned 400-500 stocks in his life, and that he made most of his money from 10 of them. Charlie Munger immediately added, saying that if you take away some of our most successful investments at Berkshire, our investment results would be very mediocre.
In a person’s life, there are only a few things that can change his destiny. Missing them will be an unacceptable loss; but it is very easy for you to miss them. So what to do? On the one hand, of course you need to improve your judgment and your ability to do things well. You first have to be able to choose those potentially good things and work hard to do them well. In order to improve the average success rate, you need to learn and imitate, and you need to ask experts to recommend to you. But these are limited. There is no fixed algorithm for choosing good things in the world, which is why most of Buffett’s stock selections don’t work. And even if others say it is good, it may not be suitable for you. You are unique and you can only choose.
John Wanamaker, the father of the department store industry, famously said: “I know that half of the investment in advertising is useless, but the problem is I don’t know which half.” Applying this sentence, we can roughly say that in Of all the choices you face, maybe only 1% is the best and most suitable for you, but you don’t know which 1%.
There is an upper limit to “vision”. In the end, you still have to rely on volume.
-The greatest value of wealth is freedom
The most advanced form of wealth is that when you wake up every morning, you can say to yourself: “Today I don’t have to work for money. I can do whatever I want to do and go wherever I want to go.” Everyone has this idea. To become rich, people often forget what they really want while working hard for financial freedom, and imagine that they can work hard in the first half of their lives and focus on happiness in the second half of their lives. In fact, we have seen too many people drag themselves down before “working hard” to achieve financial freedom. Human beings are not machines. They have feelings, thoughts, and inertia. Human beings cannot violate their own nature.
Morgan Hauser tells several stories in the book “The Psychology of Money” to illustrate the importance of “human nature.”
Harry Markowitz is the founder of modern portfolio investment theory. If you have a large amount of money, how can you design an investment portfolio to maximize expected returns and hedge risks? This is what Markowitz studied, and he won the Nobel Prize in Economics for it. After Markowitz became famous for his theory, people inevitably asked him, what does your own investment portfolio look like? Markowitz said very honestly, “My approach is very simple, buy half stocks and half bonds.”
It wasn’t the most scientific solution, but Markowitz said, “I didn’t think much of it.” If I didn’t buy stocks but the stock market went up sharply, I would feel very regretful; and if I bought all the stocks but the stock market fell sharply, I would feel very regretful. My half-and-half investment method is not for anything else but to minimize my regrets and remorse. This is not a “rational” investment method, but it is an understandable investment method. Markowitz doesn’t have hundreds of millions of dollars to manage. He only has this little property. It doesn’t make much difference whether he has more or less. There is no need to think too much. His inner happiness, whether he feels at ease when sleeping at night, and that psychological need may be more important.
Happiness is not about maximizing assets.Happiness also includes not doing things that make you feel strongly uncomfortable, including satisfying your own vanity, including trying to avoid regrets, being worthy of your conscience, and the most important thing is having the ability to control your life..
In “30 Lessons for Life,” gerontologist Carl Pillmer interviews 1,000 older Americans to summarize their most important lessons from decades of living.
No one, not one person in a thousand, says that if you want to be happy, you should work your butt off, make money, and then buy the things you want. No one is saying that you have to be at least as rich as, or richer than, the people around you to be truly successful. No one is saying that you should choose your job based on the level of income you expect to earn. What these elderly people interviewed value is sincere friendship, a career greater than the individual, and time spent with their children. “Your children want to be with you more than your money or the things it can buy.”
People should not lose their humanity for the sake of so-called “rationality”. Emotions and hobbies are both important positions and the starting point for our scientific thinking, rather than something that should be avoided in scientific thinking. We do not live to maximize monetary gains. One of the most important purposes of living is to be happy and to satisfy our own preferences.By treating ourselves as variables and our emotions and hobbies as optimization indicators, we will live a more energetic, interesting and meaningful life. Delaying gratification does not mean that you avoid gratification, and postponing enjoyment does not mean that you postpone it for several years. Happy people are never happy only when they make enough money, but they are happy every day regardless of whether they have money or not.
-Others don’t care as much about how rich you look as you do
Many people dream of owning a top-notch luxury car and hope that others will think of themselves as successful people. But in fact, when most people see a luxury car on the road, they don’t care who is driving them, but imagine themselves driving the car. So there is a paradox here: everyone wants to use wealth to tell others that they should be admired and respected, but others usually skip this step and instead use your wealth as a benchmark for their desire to be respected. The same goes for gorgeous clothes and jewelry. It doesn’t mean you can’t like these, but if you want to gain respect and admiration through them, wealth is not the best way.
It’s like everyone knows the top rich people, but not many really care about the number of zeros followed by the number in their bankbook. What people prefer to do is imagine “how should I spend it if I have such a large amount of money.” Rather than “It’s amazing that he is so rich.”
People always tend to judge whether a person is rich by what they see, butReal wealth is the invisible part.
Singer Rihanna was once nearly bankrupt due to her high material consumption. She sued her financial advisor, but the advisor said: If you spend money to buy things, you will only have these things in the end, and of course no money. . But many people don’t realize this. They often say that they want to be a millionaire, which means they have a million to spend as they please, which is actually the opposite of the true meaning of the word. The only way to truly become rich is not to consume the wealth you already have, but to accumulate it.
Being rich does not mean being rich. Money allows you to buy what you want, but real wealth lies in not spending it easily, but saving it so you can buy something more valuable later. Wealth is a promise and expectation, a confidence that you know you can afford it. But spending money on things you don’t need is not rich. This is very similar to losing weight. Some people will reward themselves with a big meal after exercising, wasting the calories they just consumed. Being rich means saying no to that big meal and just burning calories purely.
Precisely because wealth is invisible, it is difficult for us to imitate and learn from other people’s experiences, so it is difficult for many people to accumulate real wealth.
-There is no free lunch in the world
Yes, this is a very classic quote, but it is true. Any success comes at a price, and so does investing.
What we are mainly talking about here is the impact of pessimism and disappointment, which is the “disappointment effect”.
First, let’s take a look at this chart, which shows the trend of the Dow Jones Index in the nearly 70 years from 1950 to 2019. His average return rate is about 11%, which is considered a good result. So if you decide to invest in this index, what will your mental state be like during the whole process? Will you happily say all day long that I feel at ease and that my money is helping me make money? Actually no. Most of the time, you are disappointed.
In the past 70 years, the Dow Jones Index has generally been upward. Although there have been several relatively large fluctuations in the middle, it has been rising most of the time, right? Yes and no. Even within the macro-rising range, the curve has countless small fluctuations. The shaded areas marked by the gray lines in the figure represent days when the current price is 5% lower than the previous all-time high. Those are indeed “grey” days. You didn’t sell at the last high point, and you don’t know when the next high point will come. What this point brings you is only disappointment.
This is especially true for individual stocks, and this is true even for particularly successful stocks. Netflix’s stock price has increased 350 times from 2002 to 2018. This is absolutely a good result that investors would laugh out loud in their dreams, right? But if you look closely, in these 16 years, Netflix stock price was below its previous all-time high on 94% of the trading days. Let’s imagine that if you hold such a stock, please note that this is already one of the best stocks in the entire market. You are actually living in disappointment, hope and even regret. Just like athletes forever reminiscing about the night they had their best game, businessmen wonder when they will be able to make a deal like they did a few years ago again.
This mathematical rule is called “reversion to the mean.” Any success has an element of luck, and particularly great success has an element of super luck. The so-called “good time, place, people, and people” cannot be expected to happen every day. Since it is a low-probability event, it cannot happen often. Even if your career is on the rise like Monster Beverage, 95% of your days will be nothing but memories.
So if you are a highly motivated person, your life will be spent pursuing occasional satisfaction amid disappointment.. Bearing the psychological pressure caused by stock price fluctuations is a price that must be paid. Everyone knows that enjoying time requires paying bills. In the same way, the exponential growth of funds in the financial market will not be a gift from nature.
Investment success comes at a cost that we cannot immediately see. It will not be written intuitively on the label. So when you have to pay a bill like this, it feels less like the price you pay for something nice and more like a fine you have to pay for something wrong. Although paying bills is considered normal, paying fines is something that should be avoided, so people feel they should take certain sensible precautions to avoid being fined. Whether it is a fine from the traffic police or the IRS, it means that you have done something wrong and should be punished. Therefore, for those who think that they have paid a fine when they see their wealth reduced, it is nothing more than evading possible fines in the future. It’s just a natural reaction.
Investment logic that suits you
Many people have heard a saying, “The only lesson mankind has learned from history is that mankind cannot learn any lessons from history.” There are indeed similarities in history, but the major events that really change the destiny of mankind are all determined by accidents of. For example, let’s look at the events that have changed the destiny of mankind in modern times, such as the Great Depression, World War II, atomic bombs, antibiotics, the Internet, and the 2020 COVID-19 epidemic… It is not only difficult to predict, but even difficult to imagine their occurrence. There are three laws that determine that history will not repeat itself:
There will be structural progress in the times
The so-called structural progress means that this thing is not only new, but also has a systematic change in the world.
For example, the atomic bomb is not just a matter of “a new weapon” or “a new type of bomb”. Once this weapon comes out, not only will the entire way of human warfare be completely rewritten, but there will also be “inconsistency between superpowers”. “There will be war.” This question needs to be rewritten. Another example is antibiotics. They are not just “another new drug invented”, but have completely rewritten the entire medical and health industry, and have suddenly increased the average life expectancy of humans by several decades. Such major scientific and technological breakthroughs are absolutely unpredictable, because science has no obligation and cannot provide these things to mankind. People in the past did not know that there would be atomic bombs and antibiotics, and we do not know what will or will not be available in the future. Not only technology, but also human production methods, social structures, cultural habits, and even individual personalities are constantly undergoing structural evolution. This ever-changing process makes our world full of unknowns, opportunities and challenges. Structural progress is the engine of the times, pushing us to transcend boundaries and constantly seek new ways to improve and rewrite our reality.
People can actually learn lessons from history, and it is precisely because people have learned lessons from history that history will not repeat itself.
This picture is not a barcode. It shows the economic recession in the history of the United States. Each black line represents an economic recession. The thickness of the line represents the duration of the recession. The blank space between the lines represents the time of normal economic growth.
The overall overall view is not a repeat of history, but historical progress. The overall trend is for recessions to become less frequent and shorter in duration. At the end of the nineteenth century, the United States was experiencing recessions almost every two years, seemingly consistent with the idea we learned in high school textbooks that economic crises inevitably occurred every few years as the inherent contradictions and inherent flaws of capitalism. But starting in the early 20th century, the interval between recessions became every five years. After 1950, this interval was extended to every eight years. Since the recession of 2007, 12 years have passed without another recession until 2019. Had it not been for the COVID-19 pandemic, there might still have been no recession in 2020. In fact, the United States has just experienced its longest period of continuous economic growth since the Civil War.
Why has the economic cycle changed? Doesn’t capitalism have its contradictions and flaws? Morgan Hauser suggests there may be two reasons for this. The first is the change in economic structure. In the past, the U.S. economy was mainly based on manufacturing and was prone to overcapacity. Capitalist economic crises are usually caused by overcapacity. But now the U.S. economy is dominated by the service industry, and the service industry is less prone to overcapacity. However, this explanation cannot explain why China has never experienced an economic crisis. Perhaps another reason is more significant, that is, people have summed up the lessons of history and learned how to avoid or at least delay economic recession, and how to quickly recover from economic recession. People invented the “central bank”, and the earliest central bank was the Federal Reserve. The central bank can intervene in the economy through monetary policy, and the government can use fiscal policy to regulate the economy. Both methods are visible means of intervening in the economy. History has proven that using these means to adjust the economic cycle is effective.
So it’s not that people can’t learn from history, it’s just that people can’t “always” learn from the same period of history: if this group of people learns it, the next period of history won’t be like that.
Break the fear and enter the financial market as soon as possible to ride on the new uphill slope.
While studying history cannot help us accurately predict the future, it can draw key ideas from it.
There are four concepts in value investing. Graham contributed the first three and Buffett contributed the fourth.
Company values: Buying a stock is actually buying a piece of a company, not just speculating. The purpose of investing is to participate in and share in the value a company creates, so investors should feel entitled to that value.
Ignore short-term fluctuations: Short-term fluctuations in the market do not accurately reflect the true value of a company; it is simply an expression of the current stock price. Value investors need to strictly separate the company’s value from the market price and focus on long-term holdings.
boundary of safety: Because of valuation uncertainty, investors should wait until a stock’s price is significantly below the company’s intrinsic value, not just below it. This margin of safety helps protect investors from uncertainty.
Circle of competence:Value investors must be generalists who understand all aspects from macro to micro, from different industries to within the company. However, everyone’s knowledge and abilities are limited, so it is important to understand your own circle of competence, focus on areas you understand, and avoid areas you do not understand.
The core point of these concepts is one word: picking up leaks. Many people would think that the concepts summarized by Graham and Buffett must be very correct, but when it comes to the market, they are dumbfounded. Now there are no good companies that are seriously underestimated at all, and there are no loopholes to pick up.
Graham’s standards have long been outdated, and he keeps telling the world that his standards will be. The idea of value investing was first proposed by him in 1934. Until Graham’s death in 1976, he updated the stock trading method five times. Before his death, someone asked him whether he would continue to conduct detailed analysis of individual stocks and focus on “buying companies” instead of comprehensively evaluating the entire market. This strategy, Graham made it clear that he would no longer use it. He no longer strongly advocates the practice of analyzing a company’s stock in detail to find super value opportunities.
The true wisdom of masters lies not in the laws they use, but in the laws they discover.. Graham found the method that was most suitable for the stock market at that time and for himself, so success was not difficult. Therefore, it is risky to blindly follow one person’s success story. A better approach is to observe the overall characteristics and behavioral patterns of successful people and focus on aspects rather than points.
In investing, you should choose a strategy that is reasonable and comfortable for you rather than a strategy that is absolutely rational but difficult to adhere to.
In 2008, two researchers at Yale University published a report proposing a relatively extreme investment strategy. Their guiding ideology is that people should be brave enough to take risks when they are young, and then gradually reduce their risk taking and become more and more stable as they grow older. There is nothing wrong with this idea. So how adventurous should you be when you’re young? The report’s recommendation is to use financing to buy stocks at a ratio of 2:1. That is to say, if you can come up with 1 yuan, you should borrow 2 yuan from an institution, investing a total of 3 yuan. What is the concept of this leverage? As long as the market rises by 1/3, your net worth will double; but as long as the market falls by 1/3, you will lose everything.
The Yale report says that as long as you are young, you should resolutely use this strategy even if you experience losing your money several times, and then slowly reduce the leverage throughout your long life. As long as you stick to it, this strategy can maximize your return on investment. This is totally mathematical. But Hauser says it’s not a matter of math. How many people will continue to use the same strategy even if their accounts are cleared? Can you convince yourself? Are you emotionally receptive? You can’t accept it.
Therefore, investment is really not a matter of copying homework. A good financial manager will understand the client’s retirement plans, personal circumstances, and risk tolerance, etc., and then formulate corresponding plans based on the specific situation.
Everyone’s investment rules are different. Some people enter the market and want to make a fortune and leave quickly, while some people are prepared to continue investing for five or ten years. When the market is frantic, blindly imitating other people’s investment methods and entering the market together will usually create bubbles, which is beneficial to short-term investors, but will cause heavy losses to long-term investors who fail to jump out of the market in time. In this process, it is also very important to stick to your plan.
When making long-term investments, you must insist not to be affected by the frequent actions of short-term speculators.
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