Category: Weekly Wisdom

Today, we will re-visit something that was said by Warren Buffett in his letter to shareholders in 2008, at the core of the Global Financial Crisis.

Remember the days of euphoria, when everyone is all ready to buy into the markets? It is usually a sign that the markets are overhyped. Conversely, when there is uncertainty, pandemonium and blood on the streets, it is usually the best time to buy into companies with strong fundamentals at great prices. Shopping spree!

I usually aim to buy when everyone is trying to exit their positions (potentially catching falling knifes) and sell when everyone is saying buying stocks is the best investment ever. Catching falling knifes isn’t a bad thing, just make sure the falling knife you caught has strong fundamentals that will continue to generate good returns on invested capital over time.

Today marks the start of a new series, where we cover some of the classic lessons of Value Investing.

We start with something the Father of Value Investing said back in the day:

Sometimes, we are distracted by the price of a security in the short term due to market fluctuations. The market is never rational, it is driven by emotional people who look at things in an emotional manner. Therefore, it is all a popularity contest in the short term, thus a “voting machine” on a day to day basis.

However, in the long term, the market value and the stock’s intrinsic value approaches each other asymptotically. Therefore, it gives an indication of how much it is worth, a “weighing machine”.