No I dont think theres an wrong with that Look at how he justifies owning stock

No i dont think theres an wrong with that look at how

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Is there something wrong with this?” No, I don’t think there’s anything wrong with that! Look at how he justifies owning stock: “love the company,” “in for the long haul,” “shop,” “aligned with the mission and values.” Could hardly tell you better myself what you want to feel like when you own a piece of a business. Read the CEO’s annual letter to shareholders. One way to spot hot air is to compare the numbers on a company—the strength of its growth rates and ROIC—with what the CEO says in his letters to shareholders. Are they synching up? Or is the CEO telling you everything is fantastic and the numbers speak another language? This is actually so common as to be laughable. Clearly, some CEOs assume their shareholders are idiots. The CEO of one large firm wrote in his 2001 annual letter that in three years the company would be doing $10 billion in business from the “new businesses” he was investing in today. But in the 2005 annual letter he makes no mention of the fact his business is only doing $5 billion in sales. It was as if his previous prediction never existed, even though it was sitting right there on the website for all to read. Not only did he completely ignore that prediction, he then had the nerve to make a similar prediction for three years hence. If that’s how your CEO plans on keeping you informed, better to stockpile a different business.
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Red Flags I can’t tell you how many times people have asked me recently, “Phil, I get it—I get the three Ms and how to identify a ‘wonderful company,’ but seriously, how do you really know? How can you ever really know? Look at all the people who got ripped off in the last couple of years when they thought they owned solid companies?” To that I always say, “No, they didn’t know. They were speculators. They weren’t Rule #1 stockpilers.” I have a list of Biggest Mistakes people make when it comes to investing. Anyone who has ever experienced substantial losses has committed one of the following Big Mistakes. No grip on the industry: If you don’t understand the business’s industry, then you can’t possibly have a good enough grip on it to own stock in it. For example, let’s say you’re a high school teacher and one of your students keeps raving about his dad’s company—a pharmaceutical giant. You just read about this company in the paper because the FDA approved one of their hot new drugs. But you know zilch about pharmaceuticals. You don’t even take aspirin because you’re so healthy (this new drug is for an ailment you don’t understand either). And every time you try to read something about Big Pharma, you get bored because it doesn’t interest you in the least (yeah, you’re not even a science teacher—you’re in the English department). Should you even consider this drug company? No way. Stay away. Too optimistic: Be careful of this one. It’s easy to assume big numbers will continue to be big numbers. Big numbers, as you will learn in the next chapter , lead to big valuations. And big valuations can get you in trouble if you’re a stockpiler. It’s far better to be realistic. Make conservative assumptions about the future.
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  • Spring '20
  • Warren Buffett

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