Source: Qilehui
He experienced 27 bull markets and 26 bear markets in the 20th century over his lifetime. As a professional investor for 68 years, he never lost money in any year, earning him the title of 'the century's longest-standing stock market winner.'
The funds managed by the company he founded, 'Neuberger-Berman,' once reached 2 trillion US dollars.
In his autobiography, 'The Making of a Stock Market Legend: The Autobiography of Roy R. Neuberger,'mutual fundsNeuberger summarized ten key principles from his investment career.
01 Know Yourself
After analyzing various intertwined factors, if you can make advantageous decisions, then you are the type of person suited to enter the market. Test your temperament and personality:
Do you have a speculative mindset?
Do you feel uneasy about risks?
You must answer yourself with complete honesty. Your judgment should be calm and composed; being composed does not mean being slow. Sometimes, action needs to be swift. Being composed means making prudent judgments based on actual circumstances. If you prepare thoroughly beforehand, making quick decisions will not be an issue.
If you feel something is wrong, quickly exit. The stock market does not require a long procedure like real estate to correct mistakes. You can always escape from it at any time.
You need to have sufficient energy, the ability to respond quickly to numbers, and more importantly, common sense.
You should be interested in what you are doing. Initially, my interest in this market was not for money but because I did not want to lose; I wanted to win.
Investors' success is built on their existing knowledge and experience. It is best to conduct specialized investments within fields that you are familiar with. If you know little or have not analyzed companies and details, it is better to stay away.
I haven't placed funds in overseas investments because I am unfamiliar with foreign markets. I have hardly conducted transactions in foreign securities markets. My investments are mainly domestic. My international investments are also made through domestic companies, most of which are global enterprises like IBM, where half of its profits come from overseas.
Before you truly become an investor, you should also check if your physical and mental conditions are qualified. Good health is the foundation of making wise judgments; do not underestimate it.
02 Learn from Successful Investors
Even successful investors, many of them went through a tough period towards the end of this century. I spoke with many of them, and only a small portion believed they could still grasp the market situation amidst the continuous rise of stocks in 1996.
Nevertheless, their experiences and lessons are enlightening to us at any time.
Those successful investors all paved their way to success.
Lowey Price succeeded by focusing on the growth potential of emerging industries;
Ben Graham adhered to fundamental value principles;
Warren Buffett meticulously studied the lessons taught by his teacher, Ben Graham, during his time at Columbia University;
George Soros applied his theoretical insights to the field of international finance;
Jimmy Rogers identified defense industry stocks and shared his analysis and ideas with his boss, Soros.
Each of them achieved tremendous success through their own methods.
03 'Sheep Market' Mentality
You can learn from the experiences of successful investors, but do not blindly follow them. Your personality and needs differ from others. You can draw lessons from both successes and failures, selecting what suits you and aligns with your environment.
The influence of individual investors on a stock can sometimes cause it to fluctuate by 10 percentage points, but only momentarily, typically within a day, and no longer than a week. Such a market is neither a bull market nor a bear market. I refer to this type of market as a 'sheep market.'
At times, the herd gets slaughtered; other times, they are shorn of their wool. Occasionally, they may escape unscathed, retaining their wool. The 'sheep market' bears some resemblance to the fashion industry. Fashion designers create new trends, second-tier designers replicate them, and millions follow suit, leading to skirts becoming alternately shorter or longer.
Do not underestimate the role of psychology in stock trading; buyers may be more anxious than sellers, and vice versa. Beyond economic statistics and securities analysis, many factors influence the judgment of both parties, and even a minor headache can lead to an erroneous transaction.
In a sheep market, people tend to think about what the majority will do. They believe that most will find a favorable solution by overcoming difficulties. However, such thinking is dangerous and can result in missed opportunities. Imagine the majority as an institutional group—sometimes they drag each other down, becoming victims of their own actions.
04 Maintain Long-Term Thinking
Focusing on short-term investments can easily overshadow the importance of long-term ones. Companies often invest substantial capital for long-term growth, which may also have short-term impacts. If short-term effects dominate, it could harm the company’s development and future prospects.
Profit should be built on long-term investment, effective management, and seizing opportunities. If these are properly arranged, short-term investments will not play a dominant role.
When analyzing a popular stock from a narrow perspective, if it fails to meet its quarterly targets, market panic can cause its price to plummet.
05 Timely Entry and Exit
When is the right time to enter the market and buy stocks? When is it appropriate to sell stocks and stay on the sidelines?
Timing may not determine everything, but it can decide many things. A potentially good long-term investment can turn sour if purchased at the wrong time. Conversely, buying a highly speculative stock at the right time can still yield profits. An excellent securities analyst can perform well without following the market trend, but going with the flow makes operations simpler.
A speculator or investor often succeeds because they deploy substantial funds to buy during weak markets, allowing them to acquire more shares with the same amount of money. Conversely, investors sell stocks at high prices during strong markets; though the number of shares sold may be small, significant profits can be made. This principle is straightforward.
Seizing favorable opportunities partly depends on intuition, and partly on the opposite. The selection of timing requires independent thinking. In economic operations, upward trends may emerge within downturns, and recessions can begin at the peak.
What is the importance of intuition? Renowned economist Paul Samuelson believed that the stock market has 'predicted eight times during the past three major recessions,' which is entirely accurate. Thus, temporary intuition is almost as important as one’s ability to analyze securities.
Timing is subtle yet highly meticulous. Shorting at the wrong time (during an uptrend) can be costly. Ask those who shorted stocks like Ritten, Telecom Communications, Levitz Furniture, and Monmorex—they were correct in their strategy but mistimed, selling too early. I know someone who lost everything in a short position at the peak of the bull market in the summer of 1929 and only recovered by fall.
Bull markets typically last longer than bear markets. During bull markets, stock price growth tends to be slow and irregular, possibly even more so than in bear markets. Bear markets, however, are brief and characterized by sharp fluctuations. Nonetheless, the market follows certain patterns: stock prices rarely rise continuously for more than six months or fall for more than six consecutive months.
Additionally, some investors immediately close their positions upon seeing loss reports without assessing the current situation. Nine times out of ten, the stocks sold under these circumstances should have been bought rather than sold.
In such situations, the first lesson people should learn is that the market does not care about individual actions. There is nothing extraordinary about the price you pay when purchasing securities. Understanding unusual pricing and value reassessment theories is quite challenging, and this difficulty applies not only to amateur investors. Many investment advisors believe long-term investments should focus on utility stocks.
However, they hold onto stocks for too long. I believe that once stock prices climb to an excessively high level, regardless of whether it is for government employees, teachers, or others' pension funds, the stock should be sold.
Even if the stock price hasn’t reached its peak, if you’ve made a profit, it’s still advisable to exit.
Bernard Baruch was an investor with exceptional timing skills. His philosophy was to aim for success without greed. He never waited for peaks or troughs. He bought in weak markets and sold in strong ones, advocating for early sales. Our company was honored to have him as a client in his later years.
During certain periods, common stocks may be the best investment, while at other times, real estate might be optimal. Everything changes, and people must learn to adapt. I completely reject the notion of an industry remaining permanently unchanged.
06 Carefully analyze the company's situation
It is essential to thoroughly examine the management condition, leadership, company performance, and corporate objectives. Particular attention should be given to analyzing the company’s actual asset situation, including equipment value and net asset value per share. This concept was widely emphasized at the beginning of the century but has almost been forgotten since then.
The company's dividend distribution is also very important and should be taken into consideration. If its dividend plan is appropriate, its stock price can rise to a higher level. If the company distributes 90% of its profits, note that this is a dangerous signal, indicating there may not be dividends next time; if the company only distributes 10% of its profits, it is also an alert. Generally, companies distribute 40% to 60% of their profits. The dividend ratios of many public utility stocks tend to be even higher.
Many institutional investors do not genuinely prioritize dividends, but individual investors consider dividends an important method to increase income.
What are growth stocks? Their astute followers identify their potential value in the early stages of the company’s development. However, typically, a company’s brand becomes recognized only after it has matured. Growth is slow, yet both individuals and institutions still purchase its stocks because their forecasts tend to be realistic.
People spend too much effort on assumed growth without considering economic recessions, outbreaks of war, government reassessments of growth indices, or changes in the indices themselves.
A stock's price-to-earnings (P/E) ratio rarely remains around 15 times because people’s expectations for the company’s future often exceed the valuation implied by such a P/E ratio—though this expectation is not necessarily correct. We know there will be exceptions, but the chance of such anomalies occurring is only 1%. Therefore, this misconception influences people to buy stocks at high prices when the P/E ratio is elevated.
I am comfortable with blue-chip companies having P/E ratios up to double the range of 10–15 times. Many of them maintain P/E ratios between 6 and 10 times, which is beneficial for both parties involved.
If you can control a company's total market capitalization, you can derive greater profits from it.
07 Do not fall in love
In this adventurous world, due to the multitude of possibilities, people may become obsessed with an idea, a person, or an ideal. Ultimately, what captures people's fascination might just be stocks. However, they are merely pieces of paper certifying ownership in a company and serve as a symbol of money.
08 Diversify investments but avoid hedging transactions
Hedging transactions involve taking long positions in some stocks while shorting others.
Professionals use hedging transactions in daily markets to mitigate risks, though sometimes newly entered hedging can amount to mere gambling. I do not advocate for it, but there is no law prohibiting it either.
Hedging has indeed been a significant innovation in modern stock trading. A century ago, when purchasing the same stock from both the New York and London markets, the price difference between cities was minimal. Experts would buy a stock on one market and sell it on another, earning slim profits yet still making gains.
Both profit and risk factors were lower compared to today’s stock market. But believe me, today's stock market is considerably risky.
If you insist on engaging in hedging transactions and are confident that your experience can guide you, remember to diversify them, maintain a comprehensive view, and ensure your strategies are sound. To diversify your investments, strive to increase your income streams, such as capital.
09 Observe the surrounding environment
By environment, I mean market trends and the broader global context. You need to adapt the models I provide to fit the operation of the specific market you are in.
When assessing the market, focus more on percentage changes rather than absolute numbers. A drop of 100 points, although seemingly substantial, might only represent a 2% change in the index.
Paying attention to the market allows me to identify when it begins to decline and when it starts to recover. This also frequently presents opportunities for investors to allocate funds into so-called conservative instruments, such as short-term zero-coupon treasury bonds, long-term treasury bonds, and treasury bills.
Short-term zero-coupon treasury bonds represent a major investment avenue for large investors, being more secure than any other form of investment—safer even than keeping cash under a mattress. You do not need an economist to tell you how to analyze interest rates; nothing is more critical than predicting market trends. The movement of interest rates is similarly significant—prolonged low long-term interest rates indicate more about the severity of economic conditions than any other fact. Generally, if both short-term and long-term interest rates begin to rise, it signals to equity investors that an upward trend is emerging.
Stocks are not seasonal, and there is no need to invest according to the calendar. Remember, for investors, every moment involves risk. For those who enjoy life and the pleasures of investing, while seasons may change, opportunities are always present.
10 Do Not Adhere Rigidly to Conventions
It is necessary to adapt one’s way of thinking based on changing circumstances. My view is that you should proactively adjust according to changes in economic and political factors. As for technical aspects, sometimes we can control them, but at other times, they are beyond our control.
I excel in bearish market thinking, often taking a contrarian stance against optimists. However, if the majority becomes pessimistic, I switch to bullish market thinking; conversely, I also engage in hedging transactions.
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