{"id":17730,"date":"2023-04-19T23:56:00","date_gmt":"2023-04-19T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=17730"},"modified":"2024-07-12T18:01:49","modified_gmt":"2024-07-12T10:01:49","slug":"basic-mentality","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/","title":{"rendered":"Buffett&#8217;s most basic mentality of investing in stocks"},"content":{"rendered":"\n<p>This article is an excerpt from <a href=\"https:\/\/berkshirehathaway.com\/letters\/1987.html\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett\u2019s 1987 shareholder letter<\/a>. The content is very important. It can be said to be Buffett\u2019s basic mentality towards stock investment.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Think_your_are_company_owner\" >Think your are company owner<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Regarding_trading\" >Regarding trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#No_formula_in_stock_invesment\" >No formula in stock invesment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Pursue_long-term_value\" >Pursue long-term value<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Willing_to_hold_for_long_haul\" >Willing to hold for long haul<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Dont_be_afraid_to_be_out_of_the_ordinary\" >Don&#8217;t be afraid to be out of the ordinary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Fits_your_personalities\" >Fits your personalities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Dont_speculate\" >Don&#8217;t speculate<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#The_ultimate_goal\" >The ultimate goal<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/19\/basic-mentality\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Think_your_are_company_owner\"><\/span>Think your are company owner<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Whenever Charlie and I buy common stocks for Berkshire&#8217;s insurance companies (leaving aside arbitrage purchases, discussed later) we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate. When investing, we view ourselves as business analysts &#8211; not as market analysts, not as macroeconomic analysts, and not even as security analysts.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Regarding_trading\"><\/span>Regarding trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Our approach makes an active trading market useful, since it periodically presents us with mouth-watering opportunities. But by no means is it essential: a prolonged suspension of trading in the securities we hold would not bother us any more than does the lack of daily quotations on World Book or Fechheimer.<br>Eventually, our economic fate will be determined by the economic fate of the business we own, whether our ownership is partial or total.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"No_formula_in_stock_invesment\"><\/span>No formula in stock invesment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Ben&#8217;s Mr. Market allegory may seem out-of-date in today&#8217;s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising &#8220;Take two aspirins&#8221;?<\/p>\n\n\n\n<p>The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben&#8217;s Mr. Market concept firmly in mind.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pursue_long-term_value\"><\/span>Pursue long-term value<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Following Ben&#8217;s teachings, Charlie and I let our marketable equities tell us by their operating results &#8211; not by their daily, or even yearly, price quotations &#8211; whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: &#8220;In the short run, the market is a voting machine but in the long run it is a weighing machine.&#8221; The speed at which a business&#8217;s success is recognized, furthermore, is not that important as long as the company&#8217;s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Willing_to_hold_for_long_haul\"><\/span>Willing to hold for long haul<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better.<\/p>\n\n\n\n<p>We need to emphasize, however, that we do not sell holdings just because they have appreciated or because we have held them for a long time. (Of Wall Street maxims the most foolish may be &#8220;You can&#8217;t go broke taking a profit.&#8221;) We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dont_be_afraid_to_be_out_of_the_ordinary\"><\/span>Don&#8217;t be afraid to be out of the ordinary<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A determination to have and to hold, which Charlie and I share, obviously involves a mixture of personal and financial considerations. To some, our stand may seem highly eccentric. (Charlie and I have long followed David Oglivy&#8217;s advice: &#8220;Develop your eccentricities while you are young. That way, when you get old, people won&#8217;t think you&#8217;re going ga-ga.&#8221;) Certainly, in the transaction-fixated Wall Street of recent years, our posture must seem odd: To many in that arena, both companies and stocks are seen only as raw material for trades.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fits_your_personalities\"><\/span>Fits your personalities<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Our attitude, however, fits our personalities and the way we want to live our lives. Churchill once said, &#8220;You shape your houses and then they shape you.&#8221; We know the manner in which we wish to be shaped. For that reason, we would rather achieve a return of X while associating with people whom we strongly like and admire than realize 110% of X by exchanging these relationships for uninteresting or unpleasant ones.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Dont_speculate\"><\/span>Don&#8217;t speculate<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>After buying a farm, would a rational owner next order his real estate agent to start selling off pieces of it whenever a neighboring property was sold at a lower price? Or would you sell your house to whatever bidder was available at 9:31 on some morning merely because at 9:30 a similar house sold for less than it would have brought on the previous day?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_ultimate_goal\"><\/span>The ultimate goal<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price. Charlie and I have found that making silk purses out of silk is the best that we can do; with sow&#8217;s ears, we fail.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"146\" height=\"98\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/02\/investing-fundamentals-1600x1200-1.jpg\" alt=\"basic mentality\" class=\"wp-image-17731\"\/><figcaption class=\"wp-element-caption\">credit: evidenceinvestor.com<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-9d402b81-75c9-41fa-9a2d-6be1252e074e\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/27\/buffett-portfolio\/\" target=\"_blank\" rel=\"noreferrer noopener\">The commonalities of Buffett portfolio \u2013 cheap, fixed income, repurchase<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/08\/17\/possibility-of-long-term\/\">Possibility of long-term holdings, Deep dive on Buffett&#8217;s case<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/07\/27\/survivorship-bias\/\" target=\"_blank\" rel=\"noreferrer noopener\">People believe successful investors are survivorship bias cannot succeed<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/07\/buffett-deserves-study\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why Buffett deserves further study?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/07\/buffett-investment-idea\/\">What helps Buffett to get his investment idea?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/06\/17\/wells-fargo\/\">Wells Fargo, a major holding once praised by Buffett and Munger<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/08\/2022-sp-500-constitutent-stock-performance\/\">2022 S&amp;P 500 Constitutent Stocks Performance<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/17\/dear-shareholder\/\">Dear Shareholder<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/07\/27\/survivorship-bias\/\">People believe successful investors are survivorship bias cannot succeed<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/09\/buffetts-acquisition-criteria\/\">Buffett&#8217;s Acquisition Criteria<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;How does Buffett manage Berkshire?&#8221;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Buffett&#8217;s basic mentality for stock investment, the most classic basic description, and many content fragments have been repeatedly quoted by the outside world.<\/p>\n","protected":false},"author":1,"featured_media":17731,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,222,35,206,71,574],"tags":[],"class_list":["post-17730","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buffett","category-ceo","category-long-term-investing","category-management-team","category-out-of-the-ordinary","category-temperament"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17730","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=17730"}],"version-history":[{"count":17,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17730\/revisions"}],"predecessor-version":[{"id":19464,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/17730\/revisions\/19464"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/17731"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=17730"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=17730"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=17730"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}