After buying, you always want to sell. Why? Because your understanding of investment certainty isn’t enough. Outstanding students are mostly “three-good” students. Investing is no exception. Outstanding companies also have three standards. In Buffett’s view, these three standards are good company, good management, and good price. Is this company really a good company? Is this company’s management really excellent? Is this company’s stock price really high? If you hold a good company with a good corporate culture and core competitive advantages, you’ll naturally be able to hold on. From the perspective of the company and management, how can you increase investment certainty? I’ll share two methods:
First, the certainty of the company. When investing and choosing companies, we should first look at results. A company has operated for many years but hasn’t made much money, and in some years even had losses. You know such a company doesn’t make money, yet you hope to make money by investing in it. Is that possible? In Buffett’s letters to shareholders, he repeatedly mentions 6 criteria for acquiring businesses. The first two are about whether the business makes money: First, the company’s profits must be of a certain scale. Second, the company must be able to continue making profits in the future. Buffett is generally not interested in turnaround companies. Why? Because such companies don’t have enough certainty!
Second, the certainty of management. Actually, the answer to this question is hidden in the book Munger’s Way. In the book, Charlie Munger mentions that some managements haven’t proven themselves or created substantial asset value, yet people conclude that they will definitely achieve extraordinary success in the future. How can such logic withstand the test of practice? Do you see? You say you’re talented—then prove it to me. Is employee loyalty strong? Do the company’s products sell well? Are the company’s customers satisfied?
Over these years, the reason my investments have become more and more concentrated, and I can hold the best companies long term, is that I’ve been constantly learning, then constantly practicing and summarizing. Learn from those who have truly made money in investing—such as Buffett, Charlie Munger, and Duan Yongping. Learn their ways of thinking, learn their investment philosophies. Not for anything else, but to increase investment certainty and not act randomly.
Whether a company is good—first look at whether it can make money. Whether management is good—first look at whether they have created value. These are the two certainty problems investing must solve. Have you solved them?