If you could use only one financial metric for investing, which would you choose? You might use gross margin, P/E ratio, or net profit growth rate. These metrics aren’t bad, but none of them goes straight to the underlying logic of investing: How much capital did I put in, and how much can I earn? If Buffett were to choose, the metric would definitely be return on equity. In Buffett’s letters to shareholders, he repeatedly mentions return on equity. Translated, it means return on equity capital. In China, people often use ROE(return on net assets), but it’s the same idea: the money earned each year divided by your capital. For example, if you invest 100 yuan in a company and it earns 20 yuan in a year, the return on equity is 20%. ...

Is value investing really hard? If you think it’s hard, you probably haven’t understood the three cornerstones of value investing. These three cornerstones are precisely the basic investment principles of value investing. They are business thinking, margin of safety, and Mr. Market. Once you truly understand and apply these three investment principles to make money, you’ll feel that value investing is not hard at all. Essentially, these three investment principles are just common sense in doing business. ...

Why do 90% of people find investing hard? Because very few people are willing to get rich slowly. Because they lack money, they want to make quick money. Because they want to make quick money, they want shortcuts. Because they want shortcuts, they ask everywhere for tips. “Don’t give me a bunch of principles—just give me the ticker code.” But the key problem is: Knowing the what but not the why. Even if you get lucky and buy a good company, as soon as the stock price fluctuates a little, 99% of you won’t be able to hold on. That’s the hardest part of investing. ...

Is your investing order reversed? When buying, you’re casual and random. After buying, you always feel uneasy, obsessing all day: Did I buy wrong? Did I buy too expensive? Should I sell? A new idea every day, tormenting yourself every day. Why? Because you don’t know that true investing means doing enough homework when buying, and after buying, doing whatever you want! The end of investing is not fidgeting, but zoning out! ...

90% of people get the first step of investing wrong. Most of us start investing like this: We see the market rising every day, hear that relatives and friends have made a lot of money investing, so we immediately open an account, immediately buy, afraid of missing a great opportunity to get rich. But only when we find ourselves standing on a high hill, feeling the cold northwest wind, do we realize that it’s cold at the top. I’m no exception—I went through the same thing back then. Looking back now, I was too young then. Now I understand that to invest well, you must first understand these 3 things. ...

Do you think the only way to make money in investing is for stock prices to rise? If so, then in Charlie Munger’s view, you are very likely the man with the hammer. Munger said: To the man with a hammer, everything looks like a nail. You always think your investment method is best, yet you just don’t make money. The reason is simple: You invest for price differences, and you’ve been holding this unprofitable hammer all along. ...

Buffett said investing is simple but not easy. Today we won’t talk about the “not easy” half—just the simple part. As long as you start from common sense and understand Charlie Munger’s sit-back investing method, you’ll see that investing really is very simple! 90% of people invest like this: they constantly open their phones, look at the market, look at candlestick charts, then sell this and buy that. I used to be like that too, busy all day. Tiring, yes—but the key thing is, I didn’t make much money either. ...

80% of people get the first step of investing wrong. They’re busy buying and selling all day, with no time to stop and think about why their investing keeps failing and what to do about it. Are you like I used to be? When investing, you’ve had this experience: You worked hard for years and finally saved some money. But as soon as you enter the market, you buy, buy, buy, and simply can’t stop. The result is small gains and big losses. After three to five years, there’s less and less money in your pocket. If you’d known this would happen, you might as well have put it in the bank. ...

After so many years of investing, has your investment return beaten the index? If not, then at least it should have beaten government bonds, right? What? It didn’t? Then your opportunity cost is huge. In Buffett’s view, if your investment return can’t beat government bonds over the long term, why not just buy government bonds? Here, government bonds are your opportunity cost. Duan Yongping holds the same view: The minimum opportunity cost in investing is the risk-free government bond yield. ...

If you’ve always lost money investing in the past, it may not be because you weren’t hardworking or weren’t lucky. 80% of the reason is that you did two things you shouldn’t have. First, you clearly knew a company wasn’t great, but as soon as the stock price rose, you couldn’t resist buying. Second, some businesses were too hard to understand. You thought you understood them, but you didn’t, and you bought them anyway. ...