Re-read "The Intelligent Investor" - the largest cryptocurrency digital currency exchange platform

Chapter 8 of “The Intelligent Investor” includes a passage:

"Precisely because of considerations of human nature (rather than financial gains and losses),

we advocate a mechanical approach in investors’ securities portfolios,

adjusting the proportions between bonds and stocks.

Perhaps,

the main benefit of this method lies in,

it gives investors something to do.

As the market rises, he will continuously sell the stocks he holds,

and reinvest the proceeds into bonds; when the market declines,

he will do the opposite.

As a true investor,

he can also derive satisfaction from the following idea: his business operations are exactly opposite to those of the general public."

This is a rebalancing method,

also the method Buffett has always used,

and has achieved long-term success.

He has indeed been following his teacher’s teachings,

constantly selling stocks during market upswings,

for example, starting to liquidate his holdings of US United Bank in 2023,

gradually selling his heavily held Apple stocks,

and shifting into US Treasury bonds,

by the first quarter of 2025,

his cash reserves had reached an astonishing $347.7 billion.

Total assets are $1.16 trillion,

accounting for nearly 30% of the broad aggregate assets; if calculated based on flexible liquidity assets,

the assets are: cash $347.7 billion + stock portfolio $269 billion = $616.7 billion,

making cash proportion 56%.

This ratio is a new high in Buffett’s history of holding cash.

To know,

during the 2008 subprime mortgage crisis,

Buffett’s cash reserves were only $44.3 billion,

accounting for just 12.6% of total assets,

which can be considered a very successful low-position buy-in.

Today’s huge cash reserves indicate his cautious attitude,

which is also a form of asset rebalancing,

perhaps another mindset in his old age,

not wanting to make big mistakes,

even if it means missing some investment opportunities.

But,

most importantly, to preserve principal.

This is also another important principle taught by his teacher Graham.

I believe Buffett has truly read Graham’s “The Intelligent Investor” countless times,

it’s incredibly powerful,

because it almost fully explains the “way” of investing.

This is also Buffett’s lifelong secret weapon,

while most people think Buffett’s practical operations are the most impressive,

after all, the wealth he has created is many times that of his teacher,

so they eagerly read his shareholder letters.

And what he talks about more is practical application,

which naturally includes methodology,

but from the perspective of “way,”

I believe Graham is the true teacher.

Using Buffett’s 1973 preface for the fourth edition of this book:

"In early 1950,

I read the first edition of this book,

that year I was 19.

At that time,

I thought it was the most outstanding investment treatise ever written.

More than 20 years have passed,

and to this day,

I still think so."

Actually,

today,

76 years have passed,

and I think so too.

Even after 200 years,

I still think so.

Returning to our own investment operations,

under what market conditions would you choose to hold cash? How much cash should you hold? For example, in a bull market,

should you sell some stocks,

and increase your cash reserves? I welcome interested friends to share your operations.

"In Chapter 3,

we have examined the history of the stock market over the past 100 years.

Here,

we occasionally review previous content,

so that investors can see their investment hopes from past records — acquiring long-term appreciation through holding relatively stable securities; or buying securities at near-bear market lows,

and selling at near-bull market highs."

“He faces two possible methods of gaining: timing and valuation.”

Look at this paragraph,

Graham used “or,”

while Buffett evolved this “or” into “both” and “and,”

that is, during bear markets,

using valuation methods to buy stocks trading below their fair value,

so these stocks begin to steadily appreciate (value reversion),

allowing him to earn substantial long-term returns,

and he sells at or slightly before the high points of a bull market when the stock prices are above their fair value,

achieving a win-win.

He perfectly combines Graham’s timing method with valuation.

This is probably the reason he believes he evolved from an ape to a human.

His teacher taught “or,”

a choice between two,

but he does “and,”

this fusion technique,

is a natural result of his management of many enterprises,

plus inspiration from Munger, Fisher, and others,

I believe,

even without Munger’s reminder,

Buffett could have advanced to this level.

First, he is a thoughtful and independent thinker; second, he has been on the battlefield,

never leaving,

with rich battle experience; third, he is an entrepreneur,

not just a stock investor,

successful entrepreneurs tend to integrate and synthesize!

The fact that Buffett has not written another book on investing reflects another reality,

his teacher has indeed explained all the “ways” of investing.

Regarding Fisher’s “How to Pick Growth Stocks,”

I think it’s not particularly related to the “way,”

he emphasizes how to select growth stocks,

which is methodology, not the “way,”

this methodology has been discussed by Graham,

buying stocks is buying companies,

Fisher just teaches how to buy companies,

what kind of companies to buy.

Although he believes that is his investing “way,”

I see it as serving Graham’s “way,”

supplementing his methodology.

"If you are a cautious investor or a rational businessman,

would you decide the value of your $1,000 stake in a company based on what Mr. Market offers daily? Only if you agree with his view,

or want to trade with him,

would you do so.

When he quotes a ridiculously high price,

you are willing to sell to him; likewise,

when he quotes a very low price,

you are willing to buy from him.

But,

most of the time,

it’s better to think about the value of your holdings based on the company’s overall business operations and financial reports."

This paragraph directly discusses Mr. Market,

telling us how to utilize Mr. Market’s quotes,

the timing of action is very short and rare,

most of the time,

you only need to focus on the company’s business operations and financial reports.

A very important question here: how to judge whether Mr. Market’s quote is high or low.

The principle is of course to buy low and sell high,

but what is the criterion,

what is the center point? Intrinsic value! Or focus on the company’s intrinsic value.

But,

that’s still not enough,

as mentioned earlier,

Buffett uses “and,” not “or,”

meaning,

how should we utilize Mr. Market’s quotes?

It should be when the market is pessimistic,

he offers a price far below fair value,

which can be understood as a purchase price close to the asset value,

with a low P/E ratio,

and future profits are at least not declining,

then we buy,

and the company continues normal development,

when Mr. Market’s sentiment becomes optimistic to a certain extent,

the P/E should rise,

and the intrinsic value of the company also increases normally.

This should create a Davis double-click,

at this point,

Mr. Market’s quote should be very high,

at least above the intrinsic value of the company,

then we sell.

This is a complete, even perfect, ideal transaction process.

In such a perfectionist transaction process,

Graham also noticed several real-world issues:

The better a company’s past record and future prospects,

the more outstanding the company,

the less the connection between its stock price and intrinsic value,

the greater the price fluctuations,

and the higher the speculation potential.

Thus, most excellent companies often have price deviations.

"Regarding measuring a company’s management ability by the market average price,

more analysis is needed…

because so far,

there is no universally accepted method or standard for evaluating management effectiveness.

On the other hand,

management always insists,

they are not responsible for changes in the market value of their stocks…

Good management leads to good market average prices,

poor management leads to poor prices."

This leaves room for Buffett to play,

so he repeatedly emphasizes the importance of management for the company’s long-term development.

Always look for companies with excellent management teams to acquire or buy some shares in the secondary market.

He further details this part,

such as,

whether the company has a good corporate culture,

whether it can maintain a competitive advantage over the long term,

whether it is willing to share profits with all shareholders after earning enough.

"The development of the stock market over the past decades,

has made ordinary investors more dependent on stock market fluctuations,

unlike before,

most people saw themselves merely as owners of the enterprise.

The reason is,

when they have the opportunity to buy shares of a successful company,

the stock price almost always exceeds its net asset value."

The book I read is the fourth edition of “The Intelligent Investor,”

published in 1973,

so it includes some cases after Graham wrote the book in 1949.

For example, some cases from 1960-1972.

At least it shows an issue they noticed,

which is similar to the current stock market environment: today’s good companies,

require new investors to pay a market premium! And the premium is increasing,

meaning these investors bear higher risks.

That’s why the more outstanding the company,

the greater the stock price volatility.

Look at today’s Bubble Mart,

Xiaomi,

Dongpeng Beverage, etc.,

none are cheap,

even if the company’s performance continues to grow,

the valuation is too high,

PE ratio is too high,

the case of AP Company vividly illustrates this.

Therefore,

how to interpret market fluctuations,

and how to wait for buying opportunities,

becomes even more important.

Investment is not about beating others in their game,

but about controlling your own game.

Investing is like a baseball game,

if you want your score on the scoreboard to increase,

you must watch the field,

not just the scoreboard.