An old investment question, if a stock does not rise for several years, do you admit defeat and leave?
There is also an equally old question. After a stock is bought, it plummets and then plummets. The market proves you wrong again and again. Are you really wrong?
(1) The Past of Peter Lynch
In 1971, when Peter Lynch was just starting out, the stock price of a company he was looking at, Caesars, fell from $25 to $13. When it fell to $11 per share, under his strong recommendation, Fidelity Funds bought 5 million shares, which was one of the largest block transactions in the history of the American Stock Exchange, Peter Lynch Very confident that this stock will never fall below $10.
But nothing is impossible in the stock market. The stock price of this company not only fell to 10 dollars, but also fell to 8 dollars. He hurriedly called his mother and asked her to buy this stock immediately, because he believed that this stock was absolutely impossible. Below $7.50 — thankfully his mother didn’t heed her advice. In 1973, he watched in horror as the stock fell from $7 to $6 to $4, at which point it proved impossible to fall further.
The company, Peter Lynch calculated, was also worth at least $40 a share, but in the end, before the stock bottomed out at $4 a share, he said, he would never again swear: It is impossible for this price to fall any further! As a result, he was right in his judgment on the company. After the stock price fell below $4, the stock price of Caesars quickly rebounded to $30 per share.
This is a more than expected decline. Doesn’t rise more than expected? Peter Lynch gave countless examples:
Merck & Co., from 1972 to 1981, the stock price did not move at all, even though the company’s earnings increased steadily by an average of 14% per year. What happened next? In the ensuing 5 years, the share price of this stock has increased by 4 times.
From 1974 to 1979, the stock price of Angelica Company, which produces professional clothing, fluctuated by hardly more than 5 cents; the stock price of American Greeting was lifeless and motionless for 8 years; The stock price of SmithKline Pharmaceuticals has remained unchanged from the last 5 years of the 1960s until the first 5 years of the 1970s before Smith Kline launched Tagamet; the stock price of Harcourt Brace has not moved for a full 12 years The stock price of Lukens has not moved for 14 years. Later, these companies all rose sharply: the stock of Lukens company rose 6 times in 15 years, the stock of American Greeting company rose 6 times in 6 years, the stock of Angelica company rose 7 times in 4 years, and the stock of Brunswick company rose 6 times in 6 years. Up 6x, Smith Kline stock has tripled in 2 years…
(2) Munger’s past
In the big bear market in 1973 and 1974, Munger’s company had a two-year loss rate of 31.9% and 31.5%, respectively. Munger held on to the sharp decline and rebounded strongly in 1975, with annual earnings soaring 73.2%.
So Munger said, if you don’t accept the possibility of the stock market being cut in half, don’t come to the stock market. Because he experienced it, the funds under management fell by 70%. There are no more than two reasons. One is that the market is very bad, and the other is that his investment portfolio is concentrated in a very few stocks. Therefore, his investment performance fluctuates much more. Therefore, too concentrated holdings will put great pressure on investors. And if Munger used leverage at the time, then this is the following story:
Forty years ago, Buffett and Munger had a partner named . Originally, three people made investment decisions together and went to investigate various companies together. Then why is there no Gu Ruien? From 1973 to 1974, Munger suffered a big loss of nearly 70%. Gu Ruien borrowed money to speculate in stocks during this wave of slump, adding high leverage. In order to repay the money, he had no choice but to sell Berkshire Hathaway shares to Buffett at a price of $40 a share. . . That stock is now $480,000!
[So, some people like to monotonize a stock and add leverage, don’t they know the stock market? 】
(3) History of Buffett
I have mentioned this story several times in Snowball, and I will mention it briefly again:
Buffett started buying The Washington Post after the stock price was cut in half; moreover, Buffett’s buying strategy is to continue to increase his position after the decline. Buffett’s average cost of buying is only 25% of the company’s value. But this still kept him for 2 years. If it is 50 cents to buy 1 yuan, then his face will turn green .
Buffett bought the Washington Post in 1973, but the stock price started to take off in 1980. After buying it for 7 years and holding it for more than ten years, the result is very good and it was very successful in the past.
So, hold for the long term. Sometimes, it is because the stock market is not opened by us.
(4) Technology stocks
The price fluctuations of technology stocks are even more unpredictable than traditional stocks.
Amazon has halved in the past year, but it still has $900 billion. But I believe that the vast majority of people will find it incredible when they see its historical trend. In the 20 years since its listing, Amazon’s stock price has fallen by at least 20% in 16 years. In the past 16 years, there have been nearly eight years of annual declines of more than 40%. In 2008, Amazon’s largest decline was 64%. Between December 1999 and October 2001, Amazon’s stock price fell by 95%.
In the past year, the stock prices of those Internet companies in China have been comparable to those of Amazon.
It is Tencent, Alibaba and other companies that make people think the safest. Many people also know what hell is, and suddenly they know that it takes three months from hell to heaven.
Investing is not easy
Which serious investor, isn’t the battle robe on his body woven from scars all over his body?
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This year plans 6-10 long articles, this is the fourth
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