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My checklist is: is it cheap, is it a good deal, who's in charge, what did I miss , I go through all of that on the list. When I get to the part about what I missed , it's extremely important to understand psychology, to understand how human cognition works. And there's no better place to observe this than by following how human beings develop this cognition from an early age.
And that's why , in fact, playing with my two young daughters helps me so much as an investor. So, I think everything ends up being work in one way or another. Do you make any investments outside of the stock market, like investing in struggling companies, or do you only work with stocks? Anything. And in addition to all that, I would add one more thing.
I usually say that there are three things that define a value investor, right? First, you have an owner's mentality. Secondly, you think about the long term. Third, you require a large safety margin. But all of this stems from just one thing. You see yourself as a business owner, and a cautious one at that, because you have no control over what management will do.
So, to protect yourself, you demand compensation. The safety margin is almost a form of self-defense. In the end, everything connects. Now, people ask me: "If you think like an owner, then why are you involved in the stock market?" The stock market wasn't made for business owners; it was made for anyone who wants to trade.
That's the big attraction of the stock exchange. That's why 95% of people will never buy into this idea of being a value investor. Because, imagine , if everyone were a value investor, in practice that would never happen because of human nature. But if 100% of people were value investors, would the stock market even exist?
Of course . Who would want to buy an initial public offering without an IPO? Where would the secondary market come from? And if everyone demanded a huge safety margin, who would agree to sell? That's why I started this lesson by saying: you basically don't belong in the stock market, and that's why you always need to be aware of this and position yourself in the right way.
Don't get too excited now, but if you 're truly a business owner at heart, at some point you'll feel the urge to actually own businesses . That's why Buffet loves it so much . The Manger too. Each of them ran a partnership for about 13 years, buying companies and managing real businesses. Or if you're really focused on returns, you might end up going into private equity, which is ultimately more like a real company.
But as long as humans exist, a value investor with that mindset will always find something to do. Something that will generate profit in the market. This doesn't mean the market was made for that type of person, but rather that the market was made for a fundamentally flawed type of person , attracted by the thrill of trading.
And if you want to negotiate, you're bound to make mistakes. Whether it's out of fear, greed, or any other emotion along the way, you're going to make mistakes, and that's where there will always be room for people like you. Assuming you are indeed part of that 5%, there will always be an opportunity waiting for you.
What leads you to decide to sell the stock? That's a very interesting question. I've improved a lot compared to her. My previous philosophy was: "If I wouldn't buy it at that price, then I'll sell it." That was my logic. But over time I've changed a bit, because sometimes I come across a business, I have such a strong feeling, I like that company so much that I end up feeling like a real owner.
And then someone comes along trying to seduce me into selling just because the price is high. But the truth is, even though it's not a price I would pay today, my instinct tells me that the odds are in my favor, that over the next 10 years the company will only get better. And this has to do with a law of distribution among good companies.
Leaders end up attracting a disproportionate share of capital. In certain sectors, this competitive advantage is so great, so long-lasting, that I've started to think differently. OK, if I sell, I might never be able to buy it back. And on top of that, I'm going to have to pay a huge tax burden. Because if you were right, the asset appreciated significantly, and then comes the capital gains tax.
But if you don't sell, it's like you're borrowing from the government without interest. You are leveraged by 30%, 40%, or, in my case, even 50%. And it's a loan that the government won't ask you to repay, at least not as long as you keep holding onto the paper. So, if the company manages to reinvest that capital with a return not of 15%, but between 50% and 100% per year, that calculation becomes very interesting, very quickly.
Of course, there's a condition: you need to be confident, to be able to project the performance of this company 10, 20 years into the future. And I would say that in a whole 50-year career, you'll have, I don't know, 5 or 10 opportunities like this at most. Now, if you're an investment banker, all you do is project to infinity.
But that's nonsense. You know it 's nonsense. Everyone knows. You don't even know what's going to happen tomorrow. How can you predict what will happen 10 years from now? That whole story about terminal values, projection to infinity, it all means nothing. But if you're good, if you've studied intensely for decades, you might find five or ten companies that you can bet on with absurd confidence for the next 10 or 20 years.
So, at this point, why sell? You have the government lending you money with 40% leverage, zero interest, and the company reinvesting that capital with a 50% to 100% return, plus tax efficiency. That's what you should do. And that's what you do. That's what you do. เฮ
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