The public are always wrong
Bernard Baruch was born in 1870 in South Carolina and graduated from the City College of New York. Baruch is a successful example of starting from scratch and a stock trader who is good at grasping opportunities, as well as a flexible investor, also a politician who is familiar with economic development, investing in ghosts and speculative masters.
Baruch proposes to pay attention to three aspects of the investment object: first, it must have real assets; second, it is better to have a franchise advantage of operation, which can reduce competition, and the way out for its products or services is more assured; The third and most important is the management ability of the investment target.
Baruch cautioned that he would rather invest in a company that has no money but is well managed, and don't touch the stocks of a well-funded but poorly managed company. Baruch also paid considerable attention to the control of risk. He believes that it is necessary to keep a certain amount of cash in the hands; it is recommended that investors must reassess their investment at intervals and see if the stock price can still meet the original expectations. He also reminded investors to learn to stop loss: the mistake is inevitable, the only choice after the mistake is to stop the loss in the shortest time. Baruch did not agree with the so-called excess returns, and he cautioned against trying to buy at the bottom and sell at the top. He said: "Whoever says that he can always sneak into the top, it is a lie." He also reminded investors to beware of so-called insider information or hearsay, and investment mistakes are often cast into it. Therefore, some people blame Baruch for thinking that one of the reasons why he was called a “speculative master” was his seemingly desperate style.
"The masses are always wrong" is the first essence of Baruch's investment philosophy. Many of his deep understanding of investment are derived from this basic principle. For example, Baruch advocates a very simple standard to identify when it is the low price that should be bought and the high price of the sale: when people cheer for the stock market, you must sell decisively, regardless of whether it will continue to rise or not; when stocks are cheap enough that no one wants, you should dare to buy, regardless of whether it will fall again. People are often surprised by Baruch's judgment and his ability of grasping the fleeting opportunities.
He believes that any so-called "real situation" in the stock market is indirectly conveyed through people's emotional fluctuations; in any short period of time, the rise or fall of stock prices is mainly not due to objective, non-human economic forces or Changes in the situation, but because people react to what is happening. Therefore, he reminds everyone that the basis of judgment is understanding. If you understand all the facts, your judgment is correct. On the contrary, your judgment is wrong. In all aspects of the public's psychological understanding, Buffett and Baruch are exactly the same. Isn’t that Buffett always say you have to shrink your hands when the public is greedy, and to be aggressive when the public is afraid? The two masters have many similarities in the investment philosophy.
Baruch’s investment approach is more flexible and he advocates stop loss firmly. He said that if investors have the awareness of stoping loss, even if they only do three or four times every ten times, they will become rich. He wants investors to have plan B so they can turn around and leave at any time. Buffett seems to be more assertive and don’t change the investment plan easily that has been formulated. He said: "If you can't carry out the plan with ease after the stock price has fallen by half, then you are not suitable for stock investment." What can be done is that Buffett is cautious in choosing stocks. In this way, Buffett is like a well-trained Tai Chi master, and Baruch is more like a swordsman sealing the throat.
The basic qualities that investment and speculation must have:
Self-reliance. Must think independently. Avoid emotionalization and remove all environmental factors that may lead to irrational behavior.
Judgment: Don't let go of any details - think for a moment. Don't let what you want to happen affect your judgment.
Courage: Don't overestimate the courage you might have when everything is bad for you.
Agile: Good at discovering all the factors that may change the situation and the factors that may affect public opinion.
Cautious: Be easy, otherwise it is difficult to be cautious. When the stock market is in your favor, you need to be even more modest. It is not a cautious act when you think that the price has reached the lowest point; you’d better wait and see, it is not late to buy later. It’s not a cautious act to wait until the price rises to the highest point – it’s probably safer to get out of the hand.
Flexibility: Consider all objective facts together with your own subjective view. It is necessary to completely abandon the attitude of stubbornness – or “self-righteousness”. The idea of earning a certain amount of money over a certain period can completely ruin your own flexibility. Once you decide, act – don't wait and see what will happen to the stock market.
The psychological literacy that must be possessed by investment and speculation:
Almost everyone can't escape being controlled by their own emotions: they are either too optimistic or too pessimistic. After you have mastered the objective facts and formed your own opinions, please watch the trend. You should know what should happen in the market, but don't mistake it for what will happen in the market. The more the public intervenes in the stock market, the greater its power. Don't try to work against everyone, and don't stand too forward. If it is a bull market, of course, don't sell short. However, if there is a possibility of reversal or if you are worried about holding stocks, you will not be able to stay for a long time; vice versa.
When the stock market panics, the best stocks don't expect to sell a reasonable price. Pay close attention to all things that inspire or horrify the public. When the stock price climbs, considerate comprehensively what will make it climb higher. On the contrary, of course, you must also think about it. Don't forget history. The same thing when the stock price falls. Pay attention to the mainstream, but no need to have too many companions.
"Stop the loss and let the profit continue." Overall, the action should be fast. If you can't do this, please reduce your intervention. In addition, please reduce the intervention once you have doubts. After making up your mind, you should act immediately, and you don't have to consider the market reaction. However, when planning, you must consider the market trends from time to time.
Compare the two with a full understanding of past conditions and a comprehensive grasp of the current situation. Psychologically prepared for all obstacles, and excessive action will always lead to overreaction.
Unpredictable ingredients: The “opportunity” factor needs to be considered and you need to be prepared in financial, mental and physical factors.