Guide: Wall Street investment masters in the face of the ever-changing stock market, some people through the brave bargain Stock market is changing all the time, when facing this, some of Wall Street investment masters accumulate huge amounts of wealth through distinguished victory of brave bargain-hunting, while some of them suffer failure by buying at hillside. Now we take a lesson from those masters and perhaps get inspiration from them.
Warren Buffett
Quote:
When the stock market rises sharply, leave in time; when the stock market crashes, take the opportunity to buy cheap; if it crashes more, buy more, instead of selling stocks painfully.
Story:
Buffett experienced four stock market crashes in his life, namely 1973, 1987, 2000, and 2008. One or two years before the stock market crash, Buffett left the market early, and did not participate in the last wave of market but looked on others in the stock market. When the stock market fell, he peacefully entered the market to pick up the stocks that he think have future increase.
Take the 1987 stock market crash as an example. When the stock market plunged 36% from August to October 1987, the stock market fell fast and the rebound was fast. As a result, Buffett could only regret that there was no time to “let the bullets fly”. In the face of the investment opportunities that have rushed, Buffett is still very calm, because he believes that the next opportunity will come, just wait patiently. The revelation that Buffett got is that sometimes the plunging is rushing, you can't grasp the opportunity of bargain-hunting. Don't blame yourself for not controlling every opportunity, it may cause further improper investment behavior.
After the second year of the plunge, Buffett began to buy Coca-Cola in large quantities. By 1989, he has bought Coca-Cola for $1 billion in two years. After 1994, he continued to increase his holdings to a total investment of $1.3 billion. At the end of 1997, Buffett’s market value of Coca-Cola’s stock rose to $13.3 billion, earning 10 times in 10 years.
Lesson:
There are three main measures taken by Buffett when the stock market plunges: First, the selected investment industry. As long as the net assets far exceed the stock price, buy. The second is to do the value band. He first calculates the intrinsic value of each share through the overall value of the listed company, and then compares it with the stock price. If the intrinsic value is much higher than the stock price, then buy it and sell it when the stock price rises. The third is to invest only with spare cash. Even in the face of those big bulls that are expected to rise 100 times in the next 10 years, Buffett insists on investing only in idle money, and waiting for opportunities if he loses.
Peter Lynch—angel of stocks
Quote:
The historical law of stock market volatility tells us that all the big falls will pass and the stock market will always rise even higher. Historical experience also shows that the stock market crash is actually a risk release, a good opportunity to create investment and buy those very good company stocks at a very low price. But bargain-hunting is not that simple. Instead of constantly hunting and being quilted, it is better to wait until the bottom appears.
Story:
When the US stock market crashed in 1987, many people were turned into extreme poverty from the millionaires, and they collapsed and even committed suicide. At that time, US securities superstar Peter Lynch managed more than $10 billion in the Magellan fund. In one day, the fund's net asset value lost 18% and the loss was as high as $2 billion. Like all open-end fund managers, Lynch has only one option: selling stocks. To cope with the large redemption, Lynch had to sell all the stocks.
After more than a year, Peter Lynch still feels scared when he recalls. "At that moment, I really can't be sure whether it is the end of the world, or we are about to fall into a serious economic depression, or something not so bad, just Wall Street is about to die?"
After that, Peter Lynch continued to experience many stock market crashes, but achieved very successful performance.
Lesson:
First, don't sell all your stocks at low price because of panic. If you sell stocks desperately in a stock market crash, your selling price will often be very low. The market in October 1987 was frightening, but there was no need to throw stocks on that very day or the next day. In November of that year, the stock market began to rise steadily. By June 1988, the market had rebounded by more than 400 points, which means that the increase exceeded 23%. Second, we must have firm courage in holding good company stocks. Third, we must dare to buy good company stocks at low prices. Plunging is the best chance to make big money: it’s a chance to earn huge wealth in this kind of stock market crash. A plunge creates good opportunity to make big money.
Benjamin Graham: Godfather of Wall Street
Quote:
First, never lose money; second, never forget the first one.
Story:
Graham is the mentor of Buffett, the father of securities analysis, the originator of value investing. In September 1929, the Dow Jones index rose to a maximum of 381 points and then began to fall. On October 29, the Dow Jones index plunged 12%, which was described as the “worst day” in the 112-year history of the New York Stock Exchange, namely the most famous “Black Tuesday” in history.
In November 1929, the Dow Jones index fell to a minimum of 198 points and then bounced. By March 1930, it had risen to 286 points, with a rebound rate of 43%. So many investors believe that the worst period has passed and the stock market will have a big reversal. Graham also thought so, so he began to enter the market.
He bought all the stocks that were very cheap from the perspective of value assessment. In order to achieve greater profitability, he also used margin to leverage. But the stock market rebound continued until April and then began to plunge. The Dow Jones index fell 33% in 1930, while Graham managed a fund loss of 50.5%. By July 1932, the Dow Jones index had reached a minimum of 41 points. From the highest point of 381 points, the biggest drop was 89%, while the Graham-managed fund lost 78%. The super-big bear market almost made him go bankrupt.
Graham later re-emerged and wrote the investment Bible "Security Analysis" and "The Intelligent Investor" to sum up an eternal principle of value investment: the margin of safety.
Lesson:
Safety first, profit second.
Bill Miller: Geek of Reverse Investment
Quote:
I often remind my analysts that company's information completely represents the company's past, and the stock's valuation is 100% depending on the future.
Story:
The Legg Mason Value Trust, managed by Miller, consistently defeated the Standard & Poor's 500 Index during the 15 years from 1991 to 2005, creating the most brilliant fund manager record ever, and was hailed as the most successful fund manager of his generation. However, in just one year, this honor was destroyed by his own hands.
In the subprime mortgage crisis, many of companies' stocks fell sharply (which were originally good). Miller believed that investors had overreacted, so he bought in against the market. He thought that the crisis was a great opportunity to make money, and the crisis turned out to be the worst bear market after the Great Depression. Although the investment decisions of his reverse operations over the past 15 years have proved to be correct afterwards, this time it has been miserable. Miller’s stock list is like the “Martyrs List” in this crisis: AIG, Bear Stearns, Freddie Mac, Citigroup, Washington Mutual Bank, etc.
In 2008, the 58-year-old Miller said in an interview: "I have not been able to properly estimate the seriousness of this liquidity crisis from the beginning." Although Miller used to make money from market panic, he said that this time he did not expect the crisis to be so serious, and the fundamental problems were so deep that the high-quality listed companies that were the market leader actually fell. “ I still lack experience,” Miller said. “Every decision to buy stocks is wrong. It’s terrible.”
Lesson:
“Any exceptionally successful portfolio can succeed in a certain period of time is because of the price misplaced insurance. The market’s estimation of this future is wrong. We compare the market’s valuation of the company and our valuation of the company, using a combination of factors to find the price misplacement."
George oros: Financial Predators
Quote:
The history of the world economy is a series based on illusions and lies. To gain wealth is to recognize the illusion, invest in it, and then quit the game before the illusion is recognized by the public.
Story:
Soros believed that the Japanese stock market had a huge bubble before 1987, and then he sold out the Japanese stocks. The result was a fiasco. The Japanese stock market was in bull till 1989. Soros advocated on the Wall Street that the US stock market would be firm and the Japanese stock market would collapse, but the result was the opposite: the US stock market crashed and the Japanese stock market was firm.
In September 1987, Soros transferred billions of dollars in investment from Tokyo to Wall Street. However, the first major collapse was not in the Japanese stock market, but the Wall Street in the United States.
On October 19, 1987, the Dow Jones Average in New York plunged 508 points, setting a record for the time. In the next week, the New York stock market fell all the way down. The Japanese stock market was relatively strong. Soros decided to sell a few large long-term stock shares he was holding.
After the other traders caught the relevant information, they took the opportunity to slam down the stocks that were sold, which reduced the cash discount of futures by 20%. Soros lost about $650 million to $800 million in this Wall Street crash. The collapse caused the quantum fund's net assets to fall by 26.2%, much larger than the 17% decline in the US stock market. Soros became the biggest loser of this disaster.
The reason for Soros’s fiasco in the past was, in the final analysis, speculative psychology, trying to figure out the market’s opportunity arbitrarily, which caused huge loss.
Lesson:
The mistake is not shameful. It is shameful that the mistake is already obvious and not to correct. Taking risks is blameless. But remember that you must not be desperate. Right or wrong is not important, the key is how much you lose when you make a mistake, and how much you earn when you were right.
Philip Fisher: father of growth stock value investment strategy
Quote:
Learn to spend a lot of time researching and don’t rush to buy. In a continuously falling market, don't buy stocks too quickly that you are unfamiliar with.
Story:
In 1929, the US stock market was in a frantic bull market before the collapse, but Fisher found that many industries in the United States had unstable prospects and the stock market had a serious bubble. In August 1929, he submitted a report to the senior bank executive “The most serious bear market in 25 years will begin.” This can be said to be the most impressive stock market forecast in Fisher's life. He said: "I am inevitably dazzled by the stock market. So I look around for some fairly cheap stocks, because they have not yet risen in place." In October 1929, US stocks collapsed, and Fisher failed to survive. He suffered a heavy loss.
Lesson:
Fisher began to understand that the main factor determining the stock price was not the P/E of the year, but the expected P/E for the next few years. He said that if you can cultivate your own ability to predict the possible performance of a stock in the next few years within a reasonable upper and lower limit, you will find a key to not only avoid losses, but also earn a lot of profits.