Deciphering a Fool

“In the beginning wise men and fools men look alike. In the beginning all wealthy men and paupers look alike. And all those who believe and don’t believe look alike, in the beginning.”

Every day I begin to understand better that it’s not that Warren Buffett is that so much smarter than everyone else, but rather that many people are far more foolish than they seem.

Yes, they all may look intellectual, and quite wealthy. They say on that Wall Street is the only place where a man who drives a Rolls Royce takes investment advice from the man who took the train.

Everyone seems to know everything until a day comes when they are proven to know nothing at all. They speak of risk management when they allow soft-headed kids straight out of college to run their portfolios. They speak of many opportunities when there are few, of profitable techniques when they are indeed following the herd, and give wise and sagely advise when they go ahead and act in line with the opposite.

How many investors know why they buy? With the CDO market now under fire I would even question how many investors know what they buy? They say any idiot could fly a plane but it takes talent and skill to land smoothly. Investment history has proven no different.

In any issue you must ask yourself “Why am I buying? Is this the best opportunity in the market? What is my margin of safety? What can possibly go wrong? How much is what I am buying worth intrinsically? How long do I intend to hold for? When and under what circumstances will I sell?”

If any of these questions lack answers the ownership of the issue at hand should immediately come into question.

Buy and Hold. Remember that any properly thought through investment will eventually prove profitable, however it will differ as to what time in the future it will occur. This is more an element of discipline than one of value. Once you realize a trade has gone sour it may be about to turn fresh again.

Buy what you know. It sounds so simple but so many so called “investors” disobey it every day in the hope of better than average returns.

Patience. This applies to the purchase of a good holding as much as it is applicable to its hoarding. When you go to a supermarket and you don’t see any bargains you often leave empty handed. Shopping in the Stock Market should be no different.

Buy Low, Sell High. It sounds so simple. But few understand its true meaning. You cannot expect to make an astounding purchase and have the Street cheer you on. On the contrary, their scoff and boo you off stage, even call you “irrational”. But then again maybe you do know something they don’t.

As Warren Buffett said “Fools do in the end what wise men do in the beginning.”


Tags: ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: