In yesterday's article, I recalled some fragments of my past investment experience and an investment method formed by stringing these fragments together.
This type of investment is actually very similar to venture capital.
In this way, both our thinking and our operation are risk-oriented in style:
The scenarios we face are all new and unprecedented;
The things we want to understand go against “normal reason” and “common sense”;
The assets we are buying have not been proven for a long enough period of time and cannot be measured using traditional revenue models.
I had these insights before, but in the past six months, I felt them even more strongly after reading books related to Buffett's investment.
When I was writing the article yesterday, I thought I would take this opportunity to share with you my superficial understanding of Buffett's investment approach and provide you with a different perspective and thinking.
Buffett's investment approach is completely different from the above one, and it can even be said to be the opposite.
If we compare it directly with the above investment method,
I think Buffett/Munger's investment approach can be described as: avoiding risks both in thinking and in operation.
The scenarios we are facing are completely new and unprecedented, while the scenarios chosen by Buffett are all existing.
Whenever I saw him mention unknown scenarios in his public statements or writings, the descriptions he used were cautious or even negative.
The things we need to understand are contrary to "common sense" and "common sense"; the things Buffett understands must not only not violate "common sense" and "common sense", but he must also understand them more deeply and better than ordinary people.
Buffett/Munger’s approach to things that go against “common sense” and “common sense” is very simple: just ignore it.
The assets we want to buy have not been verified for a long enough time and cannot be measured by traditional revenue models; while the assets Buffett buys must not only be verified for a long enough time, but it is also best to estimate their cash income in the next 15, 20 or even longer years, and it must be able to be clearly measured using traditional revenue models.
When selecting investment targets, with our investment approach, we often tend to choose targets with new or even unprecedented business models but huge "imagination space"; but Buffett will choose targets with very mature business models and which he understands very deeply.
Buffett/Munger's main job is to read company annual reports and financial information to understand the situation of each industry and each company in each industry, so as to understand the profit model of an industry or a company, and try to understand whether a company will have the ability to continue to generate revenue in the next 15, 20 years or even longer, and whether this ability has a threshold to make a company invincible in an industry.
When he acquires a company or buys a company's stock, he has often had a very deep understanding of the industry or even the company itself through extensive reading and learning for more than ten years or even longer. In the past ten years, he has been patiently waiting for the company that meets his standards to appear or for the target company's stock price to reach his purchase standards.
Once he buys a company's stock, he will not easily sell the stock unless there is a change in the company's operations, model, risks, thresholds, etc., or he finds other much better investment targets.
If we look back at his past stock selling operations, we will find that his operations have been proven to be wise afterwards.
If he sells the company because of problems, it is because he has a thorough understanding of the industry and the company, and certain subtle changes in the company can allow him to see risks and problems that others cannot see in advance, allowing him to leave before risks and problems break out.
If he sells his existing stocks because he has found other better targets, then subsequent conditions will also prove that the other stocks he has newly purchased are indeed more suitable than the ones he sold.
So overall, Buffett's investment approach is steady and cautious.
This approach does not pose such a big challenge to people's thinking or common sense, but it requires investors to work harder than ordinary people to understand the industry and the company - like Buffett/Munger, who read a lot of boring financial reports and industry analysis all year round to accumulate extraordinary understanding and sensitivity to the industry and companies.
When I compared these two different investment methods, in addition to being curious about the magic of the investment field (the two completely different investment methods can find their own applicable scenarios), I also felt a severe impact on my thinking.
I often hear some investors say that they want to do both venture capital and secondary market investment like Buffett. If they can really master both methods, it would be like the old naughty boy in "The Return of the Condor Heroes" fighting with his left and right hands, and they would be invincible.