Warren buffett points out the absurdity of beta by observing that “a stock that has dropped very sharply compared to the market … becomes ‘riskier’ at the lower price than it was at the higher price”-that is how beta measures risk.
ordinary investors can make those distinctions by thinking about consumer behavior and the way consumer products companies compete, and can also figure out when a huge stock-price drop signals a buying opportunity.
Buffett reminds us that Keynes, who was not only a brilliant economist but also a brilliant investor, believed that an investor should put fairly large sums into
two or three businesses he knows something about and whose management is trustworthy.
A strategy of financial and mental concentration may reduce risk by raising both
the intensity of an investor’s thinking about a business and the comfort level he must have with its fundamental characteristics before buying it. The fashion of beta, according.
Long-term investment success depends not on studying betas and maintaining a diversified portfolio, but on recognizing that as an investor, one is the owner of a business.
price is what you pay and value is what you get.
All true investing must be based on an assessment of the relationship between price and value.
Strategies that do not employ this comparison of price and value do not amount to investing at all, but to speculation-the hope that price will rise, rather than the conviction that the price being paid is lower than ww the value being obtained.
What the wise do in the beginning, fools do in the end.”
Phil Fisher’s suggestion that a company is like a
restaurant, offering a menu that attracts people with particular tastes.