Warren Buffett's trading psychology (I)

Buffett's rule, Warren Buffett's 42 years of successful investment career, has been to uphold the inseparable law. The core essences of value investing include marginal safety principles, concentrated portfolio, long-term equity holdings, etc. There are so many famous investors obeying Buffett's rule of investors such as Keynesian, Monger, and other investors  whose returns have outperformed the broader market. Considering the fact that the U.S. stock market has risen ten times over the past 20 years' bull market, but 90% of investors still fail to make profits. It seems impossible to outperform the broader market over the long term. However, the history has shown us that Buffett's Rule is the golden rule of investing.

Although Buffett's rule is well known to the investment community at large, the number of people who have successfully applied Buffett's rule to achieve success is still very little. What is the reason for this?

The greatest difficulty in implementing Buffett's Law has two aspects: the understanding and transcending of human nature, and the expertise in judging the value of investments. The former involves the mysteries of human psychology, and the latter involves insight into the business operations behind stocks (to be discussed in a separate article). We are the people who drive the market, so the study of their psychology is a unique perspective on the investment.

Intuitive Judgment and the Four Illusions of Thinking

"Charlie and I haven't learned how to solve the company's problems yet, and our success has been in focusing on the one-foot fence we can cross, rather than discovering a way to cross the seven-foot fence."

Buffett also insists on investing in industries that he knows well, admitting that the reason why he doesn't invest in high-tech companies is that he is unable to understand and evaluate them.

One of the great discoveries of psychology is human intuition, as the French philosopher Pascal said, "The activity of the mind has its own cause, which reason cannot know." Human thoughts, memories, and attitudes all operate on two levels simultaneously, one conscious and intentional, the other unconscious and automatic. We know more than what we know that we know.

Intuition is the result of genetic optimization over time and the mental shortcut for humans to react and deal with problems. Emotions such as fear, greed, optimism, and pessimism in the stock market are all unconscious and automatic intuitive reflections of human nature. Why do people frantically chase the upside (greed) and kill the downside (fear)? Why does the stock market keep repeating the cycle of irrational boom and irrational bust? It's just because of intuition and instinct.