stocks – the game of fear and greed

Investing is not that complicated. You need to know accounting,
the language of business. You should read The Intelligent
Investor. You need the right mind-set, the right temperament.
You should be interested in the process and be in your circle of
competence. Read Ben Graham and Phil Fisher, read annual
reports and trade reports, but don’t do equations with Greek
letters in them.8
WARREN BUFFETT, 1993

But if Buffett were given the same test, he
would begin by methodically measuring the business against his basic
tenets, one by one:
• Is the business simple and understandable, with a consistent operating
history and favorable long-term prospects?
• Is it run by honest and competent managers, who allocate capital
rationally, communicate candidly with shareholders, and resist the
institutional imperative?
• Are the company’s economics in good shape—with high
profit margins, owners’ earnings, and increased market value that
matches retained earnings?
• Finally, is it available at a discount to its intrinsic value? Take note:
Only at this final step does Buffett look at the stock market price.

Step Two: Don’t Worry about the Economy
Just as people spend fruitless hours worrying about the stock market
so, too, do they worry needlessly about the economy. If you find
yourself discussing and debating whether the economy is poised for
growth or tilting toward a recession, whether interest rates are moving
up or down, or whether there is inf lation or disinf lation, STOP!
Give yourself a break.

Buffett prefers to buy a business that has the opportunity to profit
in any economy.

Stocks are simple. All you do is buy shares in a great business
for less than the business is intrinsically worth, with management
of the highest integrity and ability. Then you own those
shares forever.2
WARREN BUFFETT, 1990

I am sure, two reasons understanding
the human dynamic is so valuable in your own investing:
1. You will have guidelines to help you avoid the most common
mistakes.
2. You will be able to recognize other people’s mistakes in time to
profit from them.

I came to the psychology of misjudgment almost against my
will; I rejected it until I realized my attitude was costing me a
lot of money.9
CHARLIE MUNGER, 1995