You now own 26000 shares 2000 plus 4000 plus 20000 and have invested 60000 The

You now own 26000 shares 2000 plus 4000 plus 20000

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You now own 26,000 shares (2,000 plus 4,000 plus 20,000) and have invested $60,000. The average price you paid per share is $2.31. Five years later it’s selling for its value of $20 per share, $520,000. Let’s compare this with the loan to Vinnie: With Vinnie you turned $60,000 to $100,000 in five years and made a 10.8 percent compounded return. Not bad, right? But in the second example, because you kept investing in the business as it went down in price, your $60,000 investment is now worth $520,000, and your return is 54 percent per year. Instead of having $100,000 you have $520,000 because you learned how to stockpile. And your risk went down, too. What do you do if Vinnie doesn’t pay? You gotta deal with it. Go get some muscle. But as a stockpiler you don’t
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have to strong-arm anyone. You just let the inevitable market forces deal with the price. You know eventually the price and the value will be the same, as sure as you know the sun will rise. Stockpiling lowered your risk and exploded your return. You gotta like that. So what’s the catch? THE CATCH? The example I just used must have a catch in it, right? You probably saw one issue immediately. The stock dropped like a brick from $10 to $1 and you’re still buying it like it’s diamonds? How could you do that if everyone else is selling? Are they really that stupid and you’re really that
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smart? You have to be a genius to do this stockpiling stuff. Maybe that’s the catch. No, you don’t. And no it isn’t. The guys who are selling aren’t stupid, and you aren’t that smart. It isn’t about stupid versus smart. If you’ve got a reasonable IQ you’re going to be fine with this, because it isn’t about being clever. It’s about being reasonable . If you are a reasonable person you can rock the financial world. As crazy as that sounds, it’s so true. Making big money stockpiling stocks is about their emotions versus your reason. We’ll deal with our very emotional partner, Mr. Market, in another chapter. For now just understand that if you can keep your head when all about you are losing theirs, you are going to become very rich. You don’t have to be real smart. I’m not. (By the way. I stole that “keep your head” and “losing theirs” line from Rudyard Kipling’s famous “If…” poem.) You just have to be calm. Can you chill out when the Big Guys— the mutual fund managers who control more than 85 percent of the money in the stock market—are freaking out? Of course you can. You already are. Trust me, as I write this, they are tearing out their hair and some of them are ready to commit suicide. Meanwhile, you’ve gone about your life, dealing with the financial issues the way reasonable people do. You’ve been through financial problems before. You know you’ll find a way through this one. But the fund managers have never been through anything like this. They’re terrified of losing their cushy jobs, big Manhattan co-ops, limos, private schools, special tables at restaurants, box seats at Yankees games, pictures in the society pages, and all the other perks these people kill themselves to get so they can impress the other guys who are trying to impress them. They buy stuff with your mutual fund money and they
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  • Spring '20
  • Warren Buffett

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