When I was reading the transcripts of Buffett's Q&A sessions at the shareholders' meeting recently, I saw the old gentleman recommend Philip Fisher's "Paths to Wealth through Common Stocks" to shareholders several times.
The old man himself often said that he learned the essence of investment from two people in his life, one was his teacher Graham, and the other was Fisher.
Others summarize Buffett's investment method as 85% Graham and 15% Fisher.
I have read Graham's book The Intelligent Investor, but I have never read any of Fisher's books. This naturally made me curious about Fisher.
With this curiosity, I began to read Fisher's "Paths to Wealth through Common Stocks".
This book was written by the author in the 1950s.
In this book, the author reviews the stock market conditions in the 1950s and looks forward to and speculates on what might happen to the stock market in the coming 1960s.
In the book, the author discusses in detail the various factors that may affect stock value and price.
In the first chapter of the book, the author describes a factor that may have a significant impact on stock prices: the entry of institutional investors.
When most of us see people talking about “institutional investors” in the stock market, we may find it strange at first glance: Aren’t there institutional investors everywhere in today’s stock market?
Private equity, public equity, trusts, family funds, pension funds, state capital... Which of these is not an institutional investor?
Is there anything strange about this?
This was indeed very rare in the 1950s.
In his book, Fisher paints a picture that is hard for us to imagine today.
Affected by the political and economic environment at the time, the prices of a large number of stocks were very depressed.
In addition, World War II had just ended and business activities in the entire society were still sluggish. It was rare to see thriving companies with stable profits.
In such an environment, some large capital managers at the time mainly allocated their funds in the bond market, which could provide stable and reliable returns at the time and had lower risks.
Although most institutional investors remain very conservative, some bold ones have begun to get involved in the stock market.
According to data from the New York Stock Exchange at the time, in 1949, the market value of stocks owned by institutional investors accounted for only 12.4% of the entire stock market. By 1959, this proportion had risen to 16.6%. However, overall the proportion was still very low, less than 20%.
It can be seen from this that, on the one hand, the main players active in the stock market at that time were still retail investors, but on the other hand, the proportion of institutional investors began to rise rapidly.
There are two main reasons why institutional investors began to rise rapidly:
First, as the economy gradually picks up, more and more funds begin to have investment needs;
Second, more and more funds are beginning to seek investment channels other than the bond market: the stock market has become the target of a number of emerging capitals.
Based on this, Fisher predicted that in the coming 1960s, this momentum would only become more and more rapid, and stock prices would surely rise.
By 2018, the market value of stocks held by institutional investors in the U.S. stock market had accounted for 93.2% of the total market value.
After reading the above history, I immediately thought of today's crypto assets.
The macro environment facing crypto assets today is almost the same as that of the U.S. stock market back then:
Overall activity is sluggish and it is difficult to see projects that are stably profitable.
Today, the majority of players in the crypto market are still retail investors like you and me. Institutional investors are beginning to enter the market, but the proportion is still very low.
On the other hand, the trend of capital today is repeating the trend of capital back then:
Emerging capital (including funds from some countries such as El Salvador) has begun to invest in crypto assets, and more and more capital has begun to seek investment channels other than the stock market.
The current encryption market has temporarily encountered a bottleneck in application breakthroughs, but its genes, its vitality, and its vision are still strong, and it still has advantages that other investment markets cannot match.
I believe that in the future it will be able to create giants like the seven largest technology companies in the US stock market today, bringing innovation and disruption to our lives.
I believe that today's crypto market will repeat the path that the U.S. stock market took. Institutional investors will enter the market in large numbers and will push up the prices of crypto assets to heights that are difficult to imagine today.
In the face of this upcoming major trend, what should an ordinary investor do?
Fisher gave a method that he had learned from his life experience:
When you are sure that you have bought a good asset, the best way to invest is to buy it, hold it, and never sell it for the rest of your life.