Why has the depth of universal wisdom of Buffett and Charlie Munger do not invest in growth stocks?
Here the growth stocks defined as a certain risk, in the outbreak or high-speed growth of the stock / company. And such as Coca-Cola, GEICO, good city multi-chain such companies, I understand for the deterministic long-term compound growth companies. From the duration, risk and income point of view, is different.
As a result, this seemingly simple question, can actually sum up ten reasons:
1, the amount of money to accommodate restrictions. First of all, most people think of the answer is: Berkshire capital is too large, and high growth stocks are usually in the enterprise’s founding growth period, the size of enterprises is limited. This is indeed a real problem, but not necessarily the most essential reason. We asked the question of the intention is that if Buffett and Munger is in charge of small funds, will not invest in growth companies?
2, historical economic structure restrictions. The fact seems to be in Buffett and Munger’s early investment history, and less to invest in the growth shares defined in this article. There are ball analysis, said: in the early stage of Bama, the economic structure is still dominated by industrial manufacturing, and the lack of high technology and the Internet such a prone to outbreak of the growth of enterprises. This has some truth, but personal feeling, in the historical environment, cars, telephones, television can also be counted as explosive growth of emerging industries and companies. – as with the first nature, this also belongs to external restrictive conditions, not the subjective reasons for not investing.
3, technological change and creative destruction. Technological change in technology companies is too fast and difficult to predict, there is a creative destruction. This is indeed a flawed investment. But not all high-growth companies are science and technology. Such as the economic cycle of real estate and infrastructure industries, industrial manufacturing, as well as some materials and chemicals. That is, different sub-sectors of the technological transformation of the possibility of destruction is different, to a certain extent, through the development of science and technology to determine their own nature and the law to avoid. And many high-growth enterprises, the most important risk or from products based on efficiency, model, strategy and other factors of integrated market competition. But this is not the universal wisdom of Buffett, Munger is good at it?
4, the impact of excessive trading positions flexibility. For the amount of money to accommodate, on the one hand and the company’s own volume, on the other hand with the proportion of positions directly related. For high-growth stocks, stage and cyclical strong, if you hold a large proportion of shares, short-term or even 35 years of trading will have a greater impact on the cost and a series of additional effects. And, in the high-growth company changes, the larger the proportion of positions can not be flexible and timely operation. This is obviously also a big money to invest in growth stocks restrictions.
5, frequent trading expenses. While Buffett and Munger talked about the company’s long-term holding, they rarely talk about the amount of money factors, more just talk about the frequent buy and sell is a waste of energy is a practice. This is indeed true, but for Berkshire’s investment frequency, obviously not only because of investment constraints. – to know, Buffett EQ is also very high, sometimes speak more or less floating on the surface, to deal with the audience.
6, capital gains tax devour profits. This limit can not be ignored, that is, the US capital gains tax, up to 35%. Only this one factor, will lead to long-term holdings relative to the frequent operation of a huge advantage. This is a simple arithmetic problem, here is no longer proof of the formula.
7, certainty and leverage. Began to enter the core of the analysis (what? Have to Article 7, and began to enter the topic? Yes). We can assume that Buffett and Munger are preferred by 90% of the deterministic gain of 20% of the proceeds, rather than 60-70% of the deterministic access to 50-100% or higher, which can be considered to be what we call a certain risk , But may erupt the growth risk characteristics of the growth company. We assume that the two expectations in the mathematical difference is not, and then temporarily ignore some of the factors in front, then the former what kind of mysterious advantage? Yes, leverage! Lever is a definite friend, but it is an uncertain disaster. (From the volatility of mathematics in the asymmetry, which is the same way.) Buffett from the early years to set up a partnership to control Berkshire to use floating gold to invest, are essentially Low cost leverage. This facilitation mathematically determines that Buffett should prefer a more deterministic and well-paid investment target in his investment.
Even if we have discussed seven reasons for Buffett and Munger not investing in growth stocks (mostly external restrictions), there is still no close to what I want to explore. We need to answer the question is: if Buffett and Munger money is not large, do not consider the capital gains tax, and can not send products or use low-cost leverage, they will choose to invest in growth stocks? At least Munger once said that if he had a small amount of money in the early days, he would invest in growth stocks. Yes, such as Buffett and Munger, who have the deep wisdom of the world, when the amount of money is not, should be able to seize some of the greater opportunities. Let us continue to analyze more deeply.
8, the company lacks a good price. In fact, many people have thought: growth stocks, especially high-growth stocks valuation is too high, has been overdrawn or even overdraft the company’s own growth can get the benefits. This is due to the over-optimism that investors are based on a variety of psychological effects. High growth stocks is difficult to have a good price, value for money high growth stocks is very scarce, it is obviously a Bamang can not invest in the main reason for growth stocks. Not only for the Baman, for the already small amount of money is not the same as ordinary investors. However, this is not to say that there is no chance. But the difficulty will be bigger, so Munger will say that a sentence.
9, the ability to limit the circle. From the high growth of the company’s own characteristics, we can try to guess. High-growth companies, even if they do not belong to high-tech enterprises, are basically new products / services and industries. This determines, to a certain extent, that investors or investment institutions who are concerned or engaged in these industries at the outset are likely to have a comparative advantage in the capacity circle. Duan Yongping investment Netease and Apple, Zhang Lei invested Gree and Tencent, these are with Buffett, Munger holds the core idea of the investment master. And Buffett, Munger did not participate in the investment of these enterprises, apparently not because these companies do not meet their ideas, and most likely because of the limited capacity of the circle.
10, wisdom in the uncertainty. We try to further analyze the essence – from the complex characteristics of enterprises (enterprises) development characteristics itself, with a certain risk of high growth stocks and higher risk of high-tech enterprises, from the development of the inherent uncertainty (not only Is objectively poorly analyzed and predicted), is far greater than Buffett and Munger favored by certainty. Buffett and Munger’s wisdom, in itself has a certain certainty (not sure too “obvious”, but through the wisdom can explore the inherent certainty) of the company value judgments, has a greater comparative advantage. If the general excellent investors or institutions can reach 70% of the confidence, and Buffett and Munger can reach 90%. For a high-growth business with a certain degree of uncertainty, the general excellent investors or institutions can reach 60% confidence, and Bamang may only be to 65%. And for the higher accuracy, such as high-tech, Internet companies, Buffett and the general outstanding investors may be 55% in the vicinity.
If you only use one or two reasons to explain why Buffett and Munger do not invest in growth stocks, then you may lose the possibility of getting more wisdom by analyzing and dismantling the appearance. It is difficult to really learn and understand the core concept of Buffett and Munger investment. After all, in this complex nonlinear world, each representation may be built by many internal and external factors and logic.
And “why not invest in growth stocks?” And “why is the ability to circle, security margin, moat?” Is essentially a problem.