1，Buying a stock means owning a business—at its core, you're purchasing the rights to its future cash flows. Whether the company is public or private is irrelevant; the fundamental analysis remains the same. When evaluating a business, two key factors take center stage: its business model—how it generates sustainable profits—and its corporate culture—the values and principles driving long-term decision-making. Holding high-quality stocks for the long run naturally follows from identifying these strengths, not from chasing short-term price swings.
2，Focus exclusively on the business, not stock price predictions. This is the unchanging essence of investing—whether you recognize it or not. The reality is that 95% of market participants aren't true investors; they're essentially speculators who misunderstand the game. The critical discipline here is to anchor your attention on the company's ability to generate consistent profits. Ignore short-term market noise: many businesses reveal their unsustainability clearly if you simply ask, "Will this still work ten years from now?"
3，Buffett's concept of the "margin of safety" isn't about buying cheap stocks; it's about deeply understanding a company's qualitative strengths. True value comes from assessing factors like competitive moats, management integrity, and operational resilience—qualities that quantitative metrics alone can't capture. Mastering this qualitative analysis is both the core of value investing and its greatest challenge.
4，Real investors don't need "courage"—they need clarity. Panic arises from ignorance of what you own, directly violating Buffett's golden rules: "Don't short, don't borrow to invest, and never touch what you don't understand." The litmus test distinguishing investing from speculation? Investors stay calm during market drops because they trust the underlying business, while speculators panic, driven by fear of undefined risks.
5，A stock's "cheapness" is a personal judgment—your assessment of its intrinsic value, not the market's noise. The rational investor's constant question is simple: "How much will this company earn over time?" Not, "How much has my portfolio gained today?" Market prices are just temporary distractions; the business's earning power is the only durable anchor.
6，Companies themselves are the ultimate drivers of stock prices. While countless traders create daily volatility, the real "buyer" with lasting impact is the business itself—through profits used for buybacks, reinvestment, or dividends. All other market participants? They're just passing spectators adding noise, not meaningful direction.
7，Most people waste a lifetime trying to "crack the market"—a pursuit filled with endless complexity. My focus? Understand a handful of exceptional businesses deeply. The difference in difficulty? Vast. One path chases ephemeral patterns; the other studies enduring truths.
Expansion Stage: The company prioritizes growth, frequently raising capital via equity or debt—even if it generates free cash flow, it reinvests everything (and more) into scaling. Early shareholders benefit as valuations rise; think of BYD’s early investor Lv Xiangyang, who reaped massive gains as the company’s valuation climbed over time.
Maturity Stage: The business stabilizes, no longer needing external funding, and generates consistent free cash flow. Profits are returned to shareholders via dividends or share repurchases. Most U.S.-listed companies excel here, sustaining decades (or even centuries) of cash distribution—a cornerstone of capitalist systems.
Issuing overvalued shares to acquire high-quality assets (avoiding cash outlays).
Repurchasing undervalued shares to boost per-share value.
Sadly, most CEOs reverse this logic. Buffett, recognizing this, privatized companies to control capital allocation himself—subsidiaries funnel free cash to Berkshire Hathaway, where he directs investments.
As The Overlooked Investment Tips (p. 150) notes: Most executives master “making money” (operations) but lack training in “using money” (capital allocation). Rising through ranks, they rarely learn to prioritize long-term value maximization—key to shareholder returns.
Four rounds of equity financing (Hong Kong and A-shares) allowed early investors to profit as valuations soared.
Wang Chuanfu’s strategy: Use overvalued shares, not cash, for acquisitions—a textbook capital allocation win.
Acquiring Taobao/Tmall (5x PE) gave Alibaba a cash-generating moat. Yet Joseph Tsai’s bets on brick-and-mortar retail (value-destroying capital expenditure) highlight the risk: Poor allocation can sink even strong businesses, no matter the model or culture.
Acquiring low-value parent company assets steadily lowered ROIC, proving that even stable businesses suffer from poor allocation.
Two years of dividends exceeding purchase costs. The team avoids empire-building, focusing on returns—a rare gem where CEOs put shareholders first.