The value of patience
Buffett has accumulated his wealth through “value investing,” meaning buying underappreciated shares and selling them later, when the shares have duly appreciated in the market. His investment technique sounds quite simple, but it stands out because many investors do not follow the method.
Most individual investors hurriedly sell shares when they appreciate just a little bit. They are happy about a small amount of profit, so they do not estimate the right value of the shares. They are anxious as to whether the shares will go down soon, just as the 11-year-old Buffett was.
Of course, Buffett’s keen understanding about and insight into the innate value of the companies did not come for free. From the time he was a child, he borrowed local library books on investment and learned about companies’ value and stock investments.
After failing to get in the business school of Harvard University, he went to the business school of Columbia University. There, he studied under Benjamin Graham, the father of value investing.
One of Buffett’s investment principles is that he only invests in companies that he knows well. When shares of information technology companies were very popular in the U.S. stock market, he never invested in them. The reason was that he did not know much about information technology. So, he did not lose money when dotcom bubbles burst.
People who witnessed Buffett’s success started to do as he does. They see where Buffett invests and then buy the same shares. The prices of the shares that Buffett buys go up, naturally. That is the so-called “Buffett effect.”
Buffett visited Korea last week. He said that Korea’s stock market will last as it is for more than 10 years. His words effortlessly pushed the Kospi index above the 2,000 level. The Buffett effect worked again.
But to become successful like Buffett, we must be patient enough to examine the innate value of shares and wait until their value has duly appreciated. Otherwise, the rally in the stock market will prove to be more of a temporary response than a Buffett effect.
The writer is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo [firstname.lastname@example.org]