How long have you been in the game? 5 years? In the last 3 years, how much have you advanced? This is not only your question but also ours. How long have you been with us? 2 years? How much do you get better by coming to us? Here we’re now making a recap of our article. To remind you what is important, to give you a checkpoint, and to know how our progress in the understanding of the stock market.
This article will also serve as a modified sitemap to help you read what we have written so far about specific topics.
It is all about Warren Buffett.
Understanding the stock market begins with the correct concept. What you can achieve, what you can’t.
The selection of Warren Buffett is unquestionable, so we should not waste time discussing it. What we focus on is checking the reality when applying Warren Buffett’s investing strategy or approach.
Reality Checklist 1: Full-Time Investor
Our first article on investingdeck.com is about looking at reality. We cover this issue by showing the reader that Warren Buffett has multiple sources of income and cash flow. So when he needs to buy, for instance, Adobe stock, he doesn’t need to sell his Apple stock.
Warren is a businessman, like Andrew Carnegie, like Bill Gates. He runs a business, not a stock trader. His business is Berkshire Hathaway and it generates money on a regular basis. This is the free cash flow that was exploited by Warren Buffett to be invested somewhere else. So you need your boss and your job, sadly. You need to have a stable stream of income to be invested in the stock market.
For most of us, full-time investors may be nonexistent. Come to https://investingdeck.com/berkshire-hatwhaway-analysis-untold-buffett-secret/ to get a better picture.
Reality Checklist 2: Realistic Goal
We tell you, you require “rich” to be rich.
Even before their best years, Elon Musk, Bill Gates, and Jeff Bezos are born rich, Unlike most of us worry about the gas prices, electricity bills, paying rent, paying tuition bills, and not afford to buy Tesla.
Warren Buffett was also born rich. Her father is a politician and has privileged access to the company and government. Warren begin his investing journey with tremendous capital, and just in years, he could acquire Berkshire Hathaway to make his investment more agile. Most new investors don’t have that privilege.
Check our article at https://investingdeck.com/investing-strategy-of-warren-buffett-you-cant-just-copy/
Investor Note: The Right Role Model
So we have double trouble here.
Value investing could help you to become a full-time investor, – say good be to your boss. And it also could give us a wealth – welcome prosperity.
We need to set this right. That two maybe never happened as you want.
Value investing helps us build wealth, and it needs a long long time. It doesn’t mean replacing your job. Most of us may be still at 9 to 5 rhythm till retirement. It is not bad, it is not a disaster. If you don’t want that kind of job, consider opening a business or side hustle. Investing multiply your wealth slowly, the job gives you the wealth to be multiplied.
Look again, Warren Buffett. Look again at other best entrepreneurs. Have this right mindset, and you are ready to learn investing.
The Time Frame.
Understanding the stock market is about understanding risk.
After revising your mindset about what you will be after deciding to make some investment, the next logical question is: How do it?
Some traders and affiliations try to bring the conversation about birds and bush into this topic. Ever listen, bird in your hand is better than twos in the bush? This statement implies that a little profit, et say 2% is better to take right now since we don’t know what will happen tomorrow, let alone 10 years later. Sounds make sense,
But it is a trap. In most cases, predicting big things is much easier than predicting the detail. Suppose we have two sentences:
- America’s economy will be bigger than today in the next 10 years
- The Apple stock price will rise tomorrow.
I will choose the first sentence any time any day since it will likely happen. Thus investing within a short-term time frame is riskier, and we want a tight sleep. Please come to https://investingdeck.com/investing-rule-misunderstandings-birdless-bush/ to read more about this issue.
Investor Note: Reality Checklist Again.
See? The statement about bird in hand and bird in the bush is so popular, yet, it is one of the most misunderstood lessons about risk. Again here you check the reality before making a decision.
Simplification of The Strategy.
Understanding the stock market to make a strategy
We have checked the reality. We have set a realistic goal and rethink about risk. Now we are at the right time to step into the strategy.
In case you don’t know, Warren Buffett today’s style is more Munger-oriented than Graham-oriented. It means that instead of investing in a company at a cheap or low price, Warren Buffett focuses on companies that accumulate and compound the earnings and cash flow. Question is – how to pick this kind of company or business?
Lucky for us, Warren Buffett gives clues about it. Choose a company with an economic moat. Or in more technical words, select a company with a sustainable competitive advantage. An advantage that can’t be replicated by competitors easily. But It needs a further and more complex explanation. We will cover it someday in a specific article, but to give you a quick brief, the strong economic moat is characterized by monopolistic in practical. Choose a company within an industry that has a few big players, an industry where the big player at all market share and leaves only a little for smaller competitors.
Please refer to https://investingdeck.com/warren-buffett-investing-strategy-berkshire-monopoly/ for better insight.
The Proper Weapon.
Not DCF, please.
The previous section is enough to help you put your money in the right place, the next step is not paying it too much. In other words, you need to make a valuation. You don’t need to be precise, you don’t need to be exact – just don’t spend too much. A proper valuation gives you a rough “calculation” of whether your investment overvalues, undervalued, or at a fair price.
And, it is not DCF.
We cover that issue here at https://investingdeck.com/hammer-and-nail-cognitive-bias-in-investing-dcf/
You will find a DCF calculator everywhere, but it is useless. Business is too complex to be comprehended with DCF only. Remember what Warren Buffett said? Invest in the business that you clearly understand. Is calculate DCF for a certain company make you understand the business? Ask yourself. We will cover more detail about valuation in another post, but for now, we emphasize the message that DCF alone is not enough. Never.
The Psychological Skill.
Understanding the stock market to act accordingly
This is the most difficult part. After getting the right thing to buy for not too pricey cost, the next thing to do is sit down and do nothing. Unless the fundamental – in this case, the business quality – is deteriorating, just do nothing.
Why this is the hardest? Because our brain design is optimized for it. Our brain is created to love instant gratification. All of us want to buy in the morning and take the profit in the evening. No, this won’t work. You can’t do 100 sit-ups in the morning and suddenly get a six-pack in the 2 weeks.
Another psychological threat is seeing your friend’s portfolio get greener or skyrocketing – while yours walk slow like a turtle. Envy is one of the most difficult elements to be tamed.
Our advice is simple, have a business. Something that delivers money on a regular basis. Focus to build and expand it. Investing is a tool to multiply your money, but it needs time. Like the second coming of Christ, you don’t know the time.
Final Note. Beginning Journey.
Check The Reality, Back Dream, Revise it – and make it real.
See? How many misconceptions exist today about investing. And this could mislead to a financial pitfall. We, investingdeck.com, try to shout aloud and warn all people that go in the wrong direction.
You’re welcome.