When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom.
There's lots of stocks out there and all you need is a few of 'em. That's been my philosophy.
If you know how to value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren't that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness.
All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.
Well, I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one of two of 'em go up big time, you produce a fabulous result. And I think that's the promise to some people.
In the long run, a portfolio of well chosen stocks and/or equity mutual funds will always outperform a portfolio of bonds or a money-market account. In the long run, a portfolio of poorly chosen stocks won't outperform the money left under the mattress.
When people discover they are no good at baseball or hockey, they put away their bats and their skates and they take up amateur golf or stamp collecting or gardening. But when people discover they are no good at picking stocks, they are likely to continue to do it anyway.
Our mandate is to find the 200 best companies in the world and invest in them, and find the 200 worst companies in the world and go short on them. If the 200 best don't do better than the 200 worst, you should probably be in another business.
There's no use diversifying into unknown companies just for the sake of diversity. A foolish diversity is the hobgoblin of small investors. That said, it isn't safe to own just one stock, because in spite of your best efforts, the one you choose might be the victim of unforeseen circumstances. In small portfolios, I'd be comfortable owning between three and ten stocks.
Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research.
Optimization tells us precisely how to diversify the portfolio, whether I should have 12% in semiconductors or 4% in biotech, etc., and it literally tells me how to diversify not only the industry groups but the stocks.
The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think.
When you consider the sheer magnitude of investable equities to choose from in the world's emerging markets, you realize that finding one that looks attractive enough to warrant investing your faith and assets in is as formidable a task as finding a needle in a haystack. Fortunately, researching investment opportunities is a lot more interesting than digging for needles in haystacks.
I never ask if the market is going to go up or down because I don't know, and besides it doesn't matter. I search nation after nation for stocks, asking: 'Where is the one that is lowest-priced in relation to what I believe it's worth?' Forty years of experience have taught me you can make money without ever knowing which way the market is going.
While it's wonderful that investors have access to all the data now available to them, it has become a full-time job to sift through it and separate out the valuable news from the useless noise.
But my system for over 30 years has been this: When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30.
I think investors ought to focus on making sure that the stock is within their circle of competence, that it's worth a lot more than it's valued at - and once you have those two things, a stop-loss makes no sense.
My method for picking stocks has never changed. When businesses go from crappy to semicrappy, there's money to be made.
If you buy all the stocks selling at or below two times earnings, you will lose money on half of them because instead of making profits they will actually lose money, but you will only lose a dollar or so a share at most. Then others will be mediocre performers. But the remaining big winners will go up and produce fabulous results and also ensure a good overall result.
I've been investing in the stock market for 27 years and, within that time, have helped investors beat the market nearly four to one.
Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert.
If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.
You only need a few good stocks in your lifetime. I mean how many times do you need a stock to go up ten-fold to make a lot of money? Not a lot.
Much like Warren Buffett has said very famously - he doesn't buy technology stocks because he doesn't understand them- I will not buy consumer goods companies because I do not understand them.
Sell a stock only when you have found a new stock that is a 50% better bargain than the one that you hold.
