Duan Yongping's three investment principles: no short selling, no borrowing, and don't touch what you don't understand
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Duan Yongping's three investment principles: no short selling, no borrowing, and don't touch what you don't understand
The most important factor for investment success is often not deciding what to do, but deciding what not to do.
Navigating Web3 tides with focused insightsAuthor: Duan Yongping
Source: "The Way: Duan Yongping's Investment Q&A"
1 Don't Touch What You Don't Understand—It's a Rule
Reiterating the same point: no shorting, no margin, and don't do things you don't understand. It's never too late to realize this, although true understanding often comes only after paying a heavy price. (2012-03-14)
Buying things you don't understand is why 85% of people lose money in both bull and bear markets. Nothing is more absurd than buying a stock simply because it has risen a lot. (2015-06-26)
My investment "Stop Doing List" is simple: don't touch what I don't understand. Understanding mainly focuses on two aspects: business model and corporate culture. (2020-10-10)
Netizen: I really want to buy companies that let me sleep soundly.
Whether you can sleep soundly is decided before you buy. (2011-03-29)
I was just lucky enough to understand a few great businesses that happened to fall within my knowledge. The vast majority are beyond my comprehension—just like most people. But when I don't understand something, I don't touch it. Many others can't resist chasing quick profits. Of course, I also wish I could make quick money, but I know it's not possible. (2024-06-17)
Don't do what you don't understand—this is exactly what Buffett has always done. However, understanding takes time. Even Buffett sometimes thought he understood something but later realized he didn't fully grasp it. Also, Berkshire has other people managing investments; Buffett delegates authority to them, and their judgment doesn't always align perfectly with his. So the holdings we see attributed to Buffett aren't necessarily reflective of his personal style. In fact, BYD isn't Buffett's style, nor is General Motors. Buffett even admitted making a multi-billion dollar mistake with oil companies (losing much of the profit from PetroChina). (2012-10-10)
Buffett’s concept of a "circle of competence" refers to each individual having a limited scope of understanding. Everyone understands some things and doesn't understand others. Therefore, investing in what you understand makes it easier to recognize value, know what "cheap" means, and thus create opportunities for profit—and vice versa. If you buy something that makes you uneasy, you're speculating. Speculation may bring profits occasionally, but it carries high risk and prevents peaceful sleep. (2010-03-25)
Netizen: If a company repurchases its own shares, does that mean the stock is cheap? Should I follow and buy? Any kind of “following” is wrong—you'll eventually be wrong. Following means blindly buying without understanding, so sooner or later you will follow incorrectly. Moreover, following rarely leads to profits because without real understanding, you won’t be able to hold through volatility. If you truly understand, it's different. (2010-07-23)
I recently saw someone online saying they followed me into Alibaba. Anyone saying such things is a speculator! Never follow others into investments you don't understand. Getting moral support from others is useless, no matter who they are. Conversely, if you understand something yourself, it doesn't matter if others dislike it—even if that person is Buffett or Munger. (2014-09-23)
Most long-term losers in the stock market are people who don't know the boundaries of their circle of competence. (2012-12-29)
Knowing the size of your circle of competence—or more precisely, knowing where its boundaries lie—is far more important than the size itself. This explains why many seemingly "smart" people perform poorly over time. These "smart" people often attribute others’ success or their own failures to luck or accidents, and they cleverly convince themselves this is true. The line in *Kung Fu Panda 1*: “There are no accidents” actually makes a lot of sense. (2013-02-01)
"Investing is not a game where a person with an IQ of 160 will necessarily beat someone with an IQ of 130." (Buffett)
Perhaps those with high IQs don't necessarily know the limits of their abilities, and highly intelligent people may be more likely to step outside their circle of competence.
"The reason we’ve been successful is that we focus on finding one-foot hurdles we can cross rather than trying to possess the ability to leap seven-foot bars." (Buffett)
This also speaks to the circle of competence. I often recall this when seeing people discuss investment concepts they clearly don’t understand. (2012-07-28)
Entrepreneurs have a potential advantage: they might find it easier to understand companies and identify their circle of competence. Yet, I've found that many entrepreneurs I know have no special insight into the stock market—just like ordinary people—and most avoid the market entirely (because they admit they don’t understand it). Those who avoid what they don't understand are good investors—even if they avoid everything.
Upon reflection, being an entrepreneur doesn't necessarily help one better define their circle of competence—it might even have the opposite effect. (2011-09-07)
Netizen: When investing beyond one's expertise, could seeking expert advice be acceptable?
Would you dare to listen to so-called "expert" advice? When outside your domain, it's best not to touch it unless you can truly understand it. When you don't understand, experts can't help you decide. Experts can only offer reference opinions—if you still don't understand, you can't make decisions. (2010-04-18)
Experts can help greatly with details, but they cannot make decisions for you. (2010-04-19)
Netizen: Can you talk about your loss-making experiences? We’re all eager to hear about your investment failures.
I once bought an airline stock called FRNT and lost a lot of money (though I previously made a fortune on another airline stock). This company had strong cash flow but was quite small. In 2008, credit card companies suddenly demanded full cash payment (due to four other small airlines going bankrupt). At the time, if the CEO had raised cash (by selling planes or other assets), they could have survived. Instead, the CEO abruptly filed for bankruptcy. In the end, they paid what was owed, but the company truly went bankrupt. When I bought it, I mainly thought oil prices were too high and would surely drop. Once oil dropped, airlines would benefit first. Everything played out as expected—the oil price did drop, and the company later made substantial profits—but we still lost money.
Here, I again did something I didn’t truly understand. Regrettably, Buffett had already warned me to be cautious with airlines. Only after this company went bankrupt did I fully grasp what Buffett meant. So I’ll never lightly touch airlines again. (2010-03-27)
Netizen: What mistakes have you made during your investment journey? How did you discover and correct them?
I’ve mentioned some before; here’s an additional one. Last year, I bought an ETF called UNG, linked to natural gas. When I bought it, natural gas was around $3, while its long-term production cost was above $6. I believed no product could stay below cost indefinitely, so I loaded up on UNG. Later, after careful research, I realized UNG wasn’t linearly correlated with natural gas prices and suffered significant time decay—so I knew I was wrong. Still, I hesitated to sell because I was already at a loss. Then I remembered the principle: correcting a mistake immediately, regardless of cost, is always the least costly choice. Eventually, I resolved to cut losses.
Hehe, across all accounts I managed, this trade lost over ×× million dollars. But if I hadn’t sold decisively then, I’d have lost nearly four times more by now. And today’s natural gas price is 50% higher than when I bought UNG. The main error was acting without sufficient understanding of the investment (at the time, my overall portfolio performance was excellent, and I held a lot of cash). Must never be careless again. (2010-03-22)
2 Investing Is a Probabilistic Game
I believe "understanding" isn't an absolute concept—it's more like a rough estimation. Whether you understand something is known only to yourself; others can hardly judge. For example, I think I understand the value of GE’s corporate culture, but those who don't understand would happily sell me the stock when it’s cheap.
From an investment standpoint, you probably understand a stock when its price drop doesn't affect you (not psychologically)—otherwise, you might be speculating (especially if fear arises).
For instance, Yahoo recently dropped significantly from its yearly high. I reevaluated my reasons for investing in Yahoo and found the positive arguments unchanged and negatives not increased—so I had nothing to worry about. (2010-05-20)
Don't idealize the definition of "understanding." "Understanding" isn't a crystal ball predicting the future—just seeing a few key things clearly is already impressive. Over the long term, I believe investing is fundamentally probabilistic. Those who truly "understand" make fewer mistakes and achieve higher returns. Often, one shouldn't judge someone’s investment understanding solely by their behavior toward a particular stock. (2010-08-30)
Defining whether someone is "skilled" at investing is difficult—it's not a competition.
People often measure investment "skill" by short-term return ratios, but such metrics are usually unscientific because many factors affect short-term returns. Here are some examples:
Circle of competence: A knowledgeable investor’s returns may not consistently beat the market, especially when there are no suitable opportunities within their circle.
Margin: People using margin (or heavy leverage) may perform exceptionally well during correct bets—but debts must eventually be repaid.
Confidence level: Buffett said he typically invests only when he’s 95% confident (I suspect it might be slightly lower), whereas many act with only 60% confidence (or less), leading to inconsistent results. Among 10,000 such investors, some will inevitably experience extraordinary returns due to luck—not necessarily skill.
Diligence: To me, truly understanding investing means knowing not to invest in what you don’t understand. However, investment returns depend on finding good, understandable opportunities—which requires hard work to regularly identify quality targets (Buffett’s standard is roughly one per year). With my level of effort—waiting for apples to fall on my head—finding one every four years is pretty good. (2012-08-27)
Netizen: From the three dimensions of business model, corporate culture, and market price, what defines the boundary or standard of understanding? At what depth can one claim true understanding? We often face situations where we mistakenly believe we understand, or overlook a critical factor leading to failure. I recall Mr. Munger has a company screening checklist.
There's no formula, but you’ll know when you truly understand. The most important thing is your ability to completely ignore market fluctuations and focus on the business. Imagine planning to buy a company and holding it for ten years without listing—you’d still sleep soundly. Then you probably understand it. Conversely, if you believe a company will definitely face big trouble within ten years, you wouldn’t want to buy it, right? (2019-05-04)
The simplest standard for truly understanding a company is that you won’t feel the need to ask others, “Have I truly understood this company?” (2019-07-24)
Companies you haven’t understood are easy to identify—they’re the ones where you want to sell as soon as the price drops, or even when it rises slightly. True understanding means you wouldn’t want to sell regardless of price increases, and during sharp declines, you’d aggressively buy more.
The ideal state for a company you understand and have bought is not wanting to sell. (2019-04-06)
As long as you stick to "don’t do what you don’t understand," you’ll make fewer mistakes, and over time, your results will naturally surpass those who invest blindly. This falls under "doing the right things."
How to gain understanding belongs to "doing things right." If you truly can’t understand something, don’t touch anything—just keep money in the bank. Your performance might still exceed most people. (2022-02-18)
In the process of doing things right, mistakes are unavoidable—they’re part of learning. Everyone has their own learning curve. (2020-12-13)
Netizen: When do you think it's okay to copy someone else's portfolio? Or just play with a small position to track?
I occasionally copy Buffett’s moves—purely for fun. You shouldn’t bet your life savings on something you don’t fully understand. Any "investment" you’re not willing to bet your life on probably isn’t a serious "investment." (2023-03-12)
If you don’t understand, you can’t copy. If you do understand, you don’t need to copy. Investing is very simple—just buy businesses. The only way to understand investing is to understand businesses. Of course, for those who can't understand businesses, index funds like S&P 500 or QQQ are another option. Actually, picking a fund is harder than picking a company because understanding a person is harder than understanding a company, and funds charge fees. (2024-08-08)
Netizen: I spent two years studying the auto industry but couldn’t truly understand it. Should I reflect and give up, or are there ways to improve?
The number of companies I truly understand is extremely small. If you can’t understand something, you should naturally give up. Personally, understanding a company isn’t easier than earning a bachelor’s degree. But spending lots of time on companies you can’t grasp isn’t worthwhile. One crucial lesson I learned from Buffett is to first examine the business model—unless you like the business model, don’t proceed further. This saves enormous time. As for your auto industry example, I don’t understand it either. Although I made substantial money on Tesla, I eventually gave up due to lack of understanding. (2019-03-13)
Netizen: Truly not understanding is relatively easy to identify, but that gray area of partial understanding is deadly.
Most people's problems aren't even there. Also, the meaning of "understanding" varies greatly. Many spend their lives trying to understand the market, while I focus on understanding specific businesses—the difficulty difference is huge.
Understanding the market is mission impossible! Got it?
The phrase "understanding the market" is imprecise. The market is a "weighing machine" in the long run and a "voting machine" in the short term. Grasping this distinction is crucial. Most people waste too much time and energy trying to understand the "voting machine." (2022-03-05)
3 What You Understand Is Your Good Business
Netizen: Everyone knows Buffett avoids tech stocks because they don’t fit his philosophy. Yet tech stocks have defined your success. How do you reconcile this contrast?
I only do things I think I can understand (though thinking I understand doesn’t guarantee actual understanding). Some of these might happen to be what people call tech stocks. I don’t distinguish between tech and non-tech. (2010-05-30)
What you understand isn’t important. Today’s richest person in China understands beverages; maybe the next will be someone who understands pig feed.
Also, I’ve never considered myself involved in the internet or high-tech industries. The internet and so-called high technology are merely tools—like railroads, highways, or aviation in earlier eras. (2010-10-22)
Netizen: Can you reveal your investment firm’s name? I’d like to track its 13-F filings.
Why not just directly ask what to buy to make big money quickly? Knowing someone else’s portfolio won’t help if you don’t understand companies. Spend time watching Buffett’s 1998 speech in Florida instead—it’s available online. (2024-06-08)
You understand it—that’s why it’s your good business. (2010-10-23)
Netizen: Does Buffett dislike high-tech industries because they change too fast?
Does Buffett dislike high-tech? He never said he dislikes them—only that he doesn’t understand them. But once he understands, he’ll invest, as with IBM. Buffett also said, “If you can understand change, you’ll make a fortune.” The most important thing isn’t what Buffett understands—it’s what you understand. (2013-05-26)
Netizen: Low P/E ratio is a basic form of value investing, relatively primitive. The advanced form involves valuing companies—buying $1 of value for $0.40. This requires deep understanding to assess correctly.
I personally believe there’s no hierarchy in investment approaches—only differences in depth of understanding. If I foresee high growth in a company, of course I’d invest. I’ve always been happy to invest in high-growth companies—if I can confirm their growth potential. (2010-04-28)
Netizen: Which industry are you most enthusiastic about when investing? Which offers the greatest certainty? Buffett says the best businesses maintain advantages and generate profits without massive reinvestment. By this standard, many tech firms are excluded. Yet you seem to have invested heavily in tech?
Buffett has several principles: circle of competence, moat, margin of safety—but no specific industry preference. He seeks companies whose products rarely change, allowing long-term holding. But he also said, “If you can understand change, you’ll make a fortune.” Ultimately, buying stocks means buying businesses. Whether you understand stability or change, as long as you truly understand, a low price presents a good opportunity.
If you spot one such opportunity every one or two years, your returns will be excellent. (2010-05-08)
Netizen: Bank stocks are much cheaper now, yet you don’t believe in them… Hehe, I have no fear of banks, I just don’t understand them.
Incidentally, one fascinating aspect of investing is that the things you can understand are already enough to keep you busy and deliver ample returns. Moreover, mastering unfamiliar areas is rarely easy. The same time investment yields far greater returns within your circle of understanding. (2011-03-04)
Netizen: Can you suggest directions for small-capital investing?
Selecting good, understandable companies has nothing to do with capital size. (2019-03-15)
Netizen: Between Apple at $460 and Moutai at ¥160, which is cheaper?
It depends on which one you understand and how deeply. (2013-03-23)
My circle of competence is narrow—I understand very few things. In recent years, I haven’t found any company worth swapping Apple or Moutai for. (2017-03-13)
Netizen: You once praised Tencent’s business model and corporate culture, calling it a great company. Later, however, you said you couldn’t understand its future cash flows, and your position was low—only 1% (suggesting diminished confidence). I’m unclear what specifically you didn’t understand about its future cash flows and what made you uncertain.
Not understanding future cash flows means not knowing how much money the company will ultimately earn. Investing costs money, so you need to know whether the company will earn more than your investment—otherwise, you shouldn’t invest. I don’t understand most companies. I somewhat understand Tencent, but not thoroughly.
Netizen: By this standard of understanding, an average person might go years (3–5) without finding a business with a solid model, full comprehension, and a suitable price.
This is exactly why I consider myself ordinary. Over the past decade, I’ve truly understood only two companies: Apple and Moutai. On average, one every six years. (2023-11-16)
Netizen: What do you see as the biggest gap between you and Li Lu versus Buffett and Munger in practicing value investing? Where do you and Li Lu need improvement?
The biggest difference is probably that their English is far better than mine. Of course, Li Lu’s English likely differs greatly from theirs too (native vs. non-native), but this gap doesn’t significantly impact his investing career, unlike mine, which is fundamentally different.
From a value investing perspective, perhaps "difference" fits better than "gap."
In terms of understanding value investing, I believe we are completely aligned. The essence of value investing is singular: buying stocks means buying businesses, and buying businesses means buying the present value of their future cash flows. All other discussions about value investing revolve around estimating this present value. Our differences mainly stem from differing circles of competence—everyone understands different things. Of course, there are gaps in competence too—like their longer stock investing experience compared to mine.
A circle of competence means you can estimate the range of a company’s future cash flow present value. Knowing the size of your circle matters far more than the circle itself.
However, the absolute amount of money I manage now exceeds what Buffett and Munger managed at my age. Hehe. Can’t compare with Li Lu—he’s much younger.
The biggest difference between me and those three is that they’re professional investors, while I’m an amateur enthusiast—with different proportions of time dedicated to investing.
We all have plenty to learn, though Li Lu probably doesn’t need to spend time learning English like I do. (2011-01-04)
The most important thing in learning from Buffett is adopting his principles—after all, everyone’s circle of competence differs. For example, I confidently took a large position in Apple, but Buffett likely wouldn’t have. A friend of mine lost heavily on BYD. When I asked why, he said, “Buffett bought it”—this kind of imitation leads to disaster. I’ve never bought BYD. Though I’ve always been interested, I never felt compelled to buy. So whether Buffett buys it or not has zero impact on me. In short, idolizing anyone is wrong—the most important thing is what Munger calls "rationality." (2012-01-09)
An example might clarify. Buffett has many insurance and financial investments—I have almost none—because I don’t understand them and feel uneasy. I’ve invested in some internet-related companies that Buffett hasn’t, because he doesn’t understand them. He believes Coca-Cola is something people must drink; I believe games are something people must play. (2010-04-30)
What matters most in investing? Personally, I believe it’s whatever you lack. The most important thing is investing in what you truly understand. The implication is investing in what you genuinely believe will generate returns (companies).
My definition of "profitable" is returns exceeding long-term risk-free bonds. Whether someone understands a company’s profitability has no necessary link to their academic background. While higher education often correlates with stronger learning ability, schools don’t teach investing—those who truly understand investing rarely become professors, otherwise investment gurus would be academics. Still, school teaches fundamentals like financial analysis, which greatly aid investment evaluation.
Regardless of education level, everyone understands something, and that knowledge might someday reveal an opportunity. My own successes don’t seem tied to academic credentials.
For example, our 100+ fold gain on NetEase stemmed from my experience with gaming at Xiaoba-wang, giving me unique insights—something schools don’t teach, books don’t cover, and financial statements don’t reveal. When I tried explaining it, I found it difficult. Another example: I boldly bought GE because, as a business operator, we’d tracked GE’s corporate culture for years, and I genuinely believed GE was a great company.
When I say "anyone can invest," I mean there’s no rule stating only "certain types of people" can invest. But the proportion suited for investing is likely small. Perhaps because investment principles are too simple, and simple things are often the hardest.
By the way, here’s a simple investment principle: when you buy a stock, you’re buying the company! Simple? Hard? (2010-02-06)
Netizen: Reminds me of Peter Lynch’s quote: if you like a company’s product, consider buying its stock.
I usually think inversely: I avoid stocks of companies whose products I dislike, because I can’t understand (feel) them. (2011-03-24)
Netizen: Must one visit a listed company’s location to understand it? Some people rent apartments near headquarters for half a year to study them.
Even insiders may not understand their own company—how can living nearby for six months guarantee understanding? There’s no formula for understanding a company—otherwise, it could be taught in school. (2011-01-13)
Excessive company visits easily lead to short-termism. Many visit to understand short-term operations—a mindset not particularly helpful for long-term investing. (2010-04-12)
"Never ask a barber if you need a haircut." (Buffett)
Now you understand why Buffett thinks visiting companies isn’t necessarily useful. (2012-07-27)
Ultimately, value investing means understanding businesses. Anything helping you understand a business is useful, but no single condition guarantees successful investing. I have no better advice. I usually emphasize what not to do; figuring out how to do things right requires personal exploration. (2019-06-26)
Netizen: I don’t understand many things. Researching a company via annual reports, official websites, biographies, and product experiences feels insufficient. I still can’t grasp future cash flows (can’t envision the company’s competitive position ahead). Could you suggest deeper research methods?
There is one method: start a company and run it for several years—you’ll understand. Don’t think this is a joke. Huang Zheng once asked me a similar question—no matter how much he studied companies, something felt missing. We concluded running a business might help. Later, he returned to China and started a company. (2020-12-03)
Netizen: How do you know whether you truly understand (or fail to understand) a company? For example, Moutai—you’ve said you don’t drink baijiu, nor have you run a distillery.
Typically, I rely on public channels. With today’s internet, almost everything is accessible—you just need discernment. For Apple, watch all its product launches and compare them with peers—you’ll see the difference. Company websites are also informative. Be cautious with news—authors often inject opinions; if you’re unclear, you might get misled. With enough effort, you’ll understand.
Answering from another angle: I primarily evaluate two things—business model and corporate culture. If I dislike either, I stop investigating—so understanding becomes irrelevant. I don’t need to understand companies I’m uninterested in. If I like the business model (and at minimum, understand it) and the corporate culture is strong, I patiently wait for a good price. Owning a company you understand and like is characterized by complete indifference to market changes—being able to hold it and sleep soundly. Buying a "ticket" and then losing sleep, constantly asking others’ opinions, scouring the web daily for news—that’s not understanding. Truly understanding a great company is extremely difficult. Most cases require more than just reading financial statements, though occasionally you stumble upon a gem just by glancing—like some of Buffett’s picks. But such cases are rare—one in many years—serendipitous and unattainable by design. (2019-04-07)
Netizen: Investing is hard due to uncertainty about future risks.
Uncertainty is addressed with margin of safety. (2011-05-09)
Netizen: I believe margin of safety is paramount. What’s your view?
One of the important things. (2010-04-04)
My understanding of margin of safety relates to depth of understanding, not short-term stock price volatility. For a great company, slight price differences may not matter over ten years, but missing a great company due to a small price gap could be a major mistake.
I’ve pondered this for years, never grasping Buffett’s meaning of margin of safety—until my own realization: a company you don’t understand might not be cheap even at a low price. (2020-10-15)
"If you thoroughly understand a business and its future prospects, you need very little margin of safety. So, if you plan to invest in a fragile business, you need a larger margin of safety. Suppose you’re driving a truck weighing 9,800 pounds across a bridge marked ‘Weight Limit: 10,000 pounds.’ If there’s only a 6-inch ditch below, you might feel safe. But if the bridge spans a grand canyon, you’d want a much larger margin of safety." (Buffett, 1997)
I’d never seen Buffett’s original words before. Stumbled upon them today—realized they match my own thoughts exactly. (2024-01-21)
4 Mastery Lies in Low Error Rate
"Today I rewatched 'Winning in China' and heard Jack Ma say something contradictory: 'Making no mistakes will be the biggest mistake,' while Buffett’s principle is 'don’t make mistakes.' How should we interpret and apply this?" This quote is from a netizen—I think it’s an excellent question, so I’ll share my view.
I don’t know Buffett’s exact original words, but I recall him saying something like: Rule No. 1, don’t lose money; Rule No. 2, never forget Rule No. 1. Personally, I think he emphasizes investment safety here. Investing in what you don’t understand risks losing money, so it must be avoided. This doesn’t mean Buffett never loses money—in fact, his total losses exceed anyone else’s because he’s made mistakes too. Hehe, just his loss on ConocoPhillips amounted to several billion dollars. I’ve never understood why he invested in ConocoPhillips—maybe he mistakenly thought he understood it? But Buffett’s success, in my view, stems mainly from rarely making "principle-level mistakes"—meaning he strictly avoids anything beyond his competence. Over decades, he’s made far fewer mistakes than peers—nothing more. (2010-03-14)
The reason Buffett is Buffett is primarily his persistence in doing the right things—avoiding principled errors. For example, he absolutely refuses to do what he doesn’t understand. This is the most important lesson I’ve learned from Buffett.
Jack Ma speaks to the other side—how to do things right. Anyone attempting to do things right may make mistakes—no successful person is free of errors. Doing things right is often a learning process, and mistakes are usually unavoidable. The only way to avoid mistakes is to do nothing—and doing nothing can itself be the biggest mistake.
Hope this explanation helps. Sometimes Chinese wisdom seems contradictory: "Mercy doesn’t command armies," yet "love soldiers like sons"; "think thrice before acting," yet "decide instantly." Hehe, maybe they’re not contradictory—they just reflect different facets of reality. (2010-03-14)
The general rule in investing: the more you act, the less you earn—or the more you lose. (2010-04-23)
Netizen: You heavily bought NetEase and U-Haul Holding Company (UHAL) around 2002–2003. Besides Apple, have you made any notable large-scale investments in the past five years?
Better remove NetEase too—I’d become a laughingstock. (Paraphrasing Munger) (2012-02-02)
Making one major investment decision every two years definitely yields better results than making two per year. (2012-06-26)
Duan Dao has truly acted only once in the past four years—on Apple. His previous move was on GE. Maybe this is why he belongs to the rare few?
If Duan Dao only dares to act once every two years, why should "retail investors" act more frequently? (2012-07-17)
I'm not skilled at stock selection—amateur level, put in minimal effort. But my ability to avoid mistakes is master-level: if I don’t understand, I don’t touch. Anyone truly grasping these two sentences will surely earn well over time. (2011-11-03)
Good value investors aren’t those who’ve never made mistakes. The hallmark of a good value investor is a historically low error rate (especially major errors) over many years. A consistent winner merely has a high win rate—undefeated warriors are myths. (2011-12-19)
Running a business, like investing, hinges on minimizing errors. But minimizing errors doesn’t mean doing nothing—that’s paralysis. Minimizing errors means persistently doing the right things. Persistently doing the right things means stopping immediately when you realize something’s wrong—regardless of cost, it remains the smallest possible cost. The Stop Doing List is also vital. (2020-10-14)
Netizen: Reading Berkshire’s 2002 annual report, Buffett said: "In stock investing, we expect every investment to succeed. Over our 38 years operating Berkshire, the ratio of profitable to unprofitable investments has been about 100:1." This is truly where Buffett excels! Amazingly low error rate.
Hehe, you’ve hit the nail on the head. The difference between masters and others lies in low error rates, not in hitting more home runs. (2011-09-07)
Netizen: Bill Miller lost his fortune in this financial crisis, despite beating the index for 15 consecutive years—yet one year’s loss erased 15 years of gains, losing more than he earned. Was he overconfident? Previously seen as a value investor, he revealed his true colors in this crisis—previously stumbled on Enron, now on Freddie Mac. There are actually many value fraudsters. So frequency doesn’t matter—what counts is avoiding catastrophic losses when wrong, which ties to margin of safety.
I believe when someone starts pursuing index-beating performance, they’ve likely lost rationality. Many carried irrecoverable losses through this financial crisis—Buffett had none. This is absolutely no coincidence, yet few seem to notice. (2010-05-23)
Netizen: With growing investment experience, in what ways have you improved compared to the past?
Hehe, much better mindset—no fear of missed opportunities. Most importantly, avoiding major mistakes. (2010-03-18)
Netizen: Which is harder—investing or playing good golf?
Both are my favorite games—both are hard. Maybe golf is harder. I think golf is tougher because you can’t say, “I haven’t decided yet, so I won’t swing.” In investing, you can always say, “I haven’t decided yet, I won’t act.” (2019-03-30)
5 Shorting Is Foolish
Actually, my greatest wealth is the mistakes I’ve made—same for Buffett. (2010-05-05)
Netizen: Can you share your worst investment ever?
Hehe, I’ve had several money-losing investments—most forgivable. But one was extremely foolish: shorting Baidu. Previous performance was excellent, making me arrogant—truly believing I was brilliant. Started as a small bet, then became stubborn, finally got squeezed and surrendered. Across all accounts, I lost a lot—roughly $150–200 million, with one account still unable to recover.
Most regrettable: this mistake drained all our cash reserves—massive opportunity cost. Otherwise, during this financial crisis, I could’ve helped everyone earn more. Worst of all, this happened after Buffett told me not to short. Now you know the consequence of ignoring elders’ advice? The silver lining: overall performance these past three years has been decent. Actually grateful the financial crisis gave me a chance to rebound.
Never forget Buffett’s teaching: no shorting, no borrowing, no investing in what you don’t understand!
Still, this wasn’t my worst investment—it was pure speculation from the start.
There won’t be such examples in the future. (2010-03-07)
Netizen: "Most regrettable: this mistake drained all our cash reserves—massive opportunity cost"—does this mean when great opportunities arise, you have no cash to buy?
Yes, huge opportunity cost. Losing money is minor. (2010-05-12)
Netizen: What was your rationale for shorting Baidu at the time?
First, shorting itself was wrong. I did see some problematic aspects of Baidu—indeed, Baidu later dropped sharply (if I’d stayed short, I could’ve profited handsomely). But I overlooked key favorable conditions for Baidu, like policy environment. In short, shorting is speculative behavior—I shouldn’t have done it. (2010-09-14)
At the time, some neural impulse dominated—acting without rationality. (2012-03-14)
Netizen: Based on value assessment, is shorting overpriced stocks considered value investing?
Shorting isn’t value investing—you often face market madness. Worst of all, you never know how mad the market can get—so shorting disrupts sleep. In short, value investing means investments letting you sleep soundly. (2011-05-22)
Whenever you still think about shorting someone, it means you’re still a speculator (believing you’re smarter than the market). Abandon shorting thoughts early—focus honestly on finding deals letting you sleep well! (2011-10-29)
Shorting is foolish! (2013-03-04)
I don’t short—don’t want to fight myself. Understanding a company for shorting is vastly harder than for going long, and getting it wrong can be catastrophic. (2020-10-28)
Hope one day you understand why Buffett says not to short—then your investing will advance further. (2010-05-22)
I have a neighbor (not close), who specializes in shorting (I don’t understand how). Recently, he suddenly asked if I knew "GSX Techedu," saying several short-sellers targeted it for accounting fraud, citing its rapid growth. I actually had our educational electronics colleagues investigate, concluding: in this environment, its growth showed no obvious illogical signs. I warned my neighbor: China is huge—such revenue growth isn’t impossible. Stock was around $30–40 then. A few weeks ago, playing golf, I met him again—asked if he was still short? He said yes—their growth was unbelievable, must be fraudulent. I glanced at the price—around $80 that day.
I don’t understand GSX Techedu at all. My point is: better avoid shorting! The world holds many things you don’t understand—why fight yourself?
I just want to tell people sharing my neighbor’s views: shorting is dangerous—time may not be on your side. Seeing the stock rise from $30s to $130s, I genuinely worried for my neighbor—he probably struggles to sleep. Why suffer?!
Avoid companies you dislike—never short them. One misjudgment can haunt you for ages, even a lifetime—especially for those already wealthy. No one wants to become rich twice. (2020-08-11)
6 Avoiding Margin Is a Basic Investment Requirement
If you understand investing, you don’t need leverage—you’ll become rich eventually. If you don’t understand investing, you definitely shouldn’t use leverage—otherwise, you might end up exposed. Investing should be enjoyable—using leverage risks losing sleep. (2020-12-06)
Netizen: Businesses can take loans—why not recommend borrowing to buy stocks?
Business loans usually have repayment deadlines, and borrowers generally understand their ventures well—still, many get trapped lifelong due to debt.
Stock margin loans use other stocks as collateral, fully controlled by brokers. During market crashes, brokers can force liquidation anytime. Markets can go crazier than imaginable—margin users might survive decades but get wiped out by one downward frenzy. Even someone as smart as Munger once faced severe trouble due to margin (in the 1970s). Buffett’s greatness lies in never facing fatal crises throughout his career. Buffett said even a 1% chance of bankruptcy isn’t worth taking. Those who understand investing don’t need margin; those who don’t understand investing should never use margin. (2011-09-08)
Netizen: Decided to open a margin account! Brother Duan always says don’t borrow—but I couldn’t resist!
From now on, you’ll live an exciting life! (2012-08-10)
Netizen: If 20 years ago you borrowed to buy great companies like Apple, Moutai, Tencent—seems fine. But leveraged investors always like buying randomly.
Apple has dropped 40% or more from peaks at least ten times in the past twenty years, and 10–20% drops are countless. Even if you didn’t go bankrupt, using margin on Apple would likely scare you out? (2023-12-19)
Netizen: I use low leverage long-term (within 0.3x), financing cost 6%, building positions when indices are low. Domestic margin accounts typically face liquidation after ~70% drops. Is this low-leverage, long-term value investing strategy acceptable?
Never justify small evils. (2019-05-20)
Margin users aren’t stupid, but margin is addictive—until you fall into a pit. Actually, Buffett said it best: if you understand investing, you don’t need margin—you’ll become rich eventually. (2024-09-03)
Long-Term Capital Management is a perfect example. Extremely intelligent people—two Nobel economists plus a group of "brilliant" individuals—who bet their entire fortunes. (2024-09-01)
Netizen: In 2023, waited half a year for Moutai to drop—finally bought all-in at 1600. Recently it’s been falling, but I have no cash left to add—really want to borrow to bottom-fish.
We don’t know how crazy markets can get or how bad things can become. Avoiding margin is a basic investment requirement! We always think in 10–20 year terms, but using margin might trap you before then—unnecessary. (2024-09-18)
Netizen: A-share turbulence—now so relieved I didn’t use margin, pressure is much lower. Only in crisis do you realize how precious your principles are.
Your ability to do things right only benefits you when doing the right things—giving time to work for you. Otherwise, disaster eventually strikes. (2015-08-10)
Whether you borrow or not, you’ll miss infinite opportunities in life. But borrowing might leave you with no future opportunities. (2010-04-11)
Leveraged property investment isn’t essentially different from margin—when problems arise, consequences are worse due to lower liquidity. (2013-10-09)
Netizen: Feel ashamed—these principles have been familiar for over a decade, memorizable—yet still occasionally "accidentally" think about using margin. Glad I didn’t act.
You deserve some shame. Understanding slow money is hard, but understanding compound interest is harder. Under compounding, slow money becomes incredibly powerful. (2024-09-04)
Netizen: If I invest in a company with very high debt ratio, does that count as using margin?
Seems not direct margin use—won’t cause you to become rich twice. Still, I don’t like buying highly leveraged companies unless I deeply understand them. (2016-11-12)
"If you want to enhance your cognitive abilities, forgetting past mistakes is absolutely unacceptable." (Munger)
Recall the story of a thief caught, whose mind was only on improving stealing techniques.
So mistakes fall into two categories: (1) doing wrong things—never repeat, add to Stop Doing List; (2) making mistakes while doing the right things—unavoidable, but improvable through learning. The thief committed the first error but applied the second correction method—it only worsened.
"It’s best to learn profound lessons from others’ tragedies, not your own. Some of our successes were long-predicted, others unexpected." (Munger)
Ignoring wise advice brings suffering now and later. After reading this, most still won’t listen. Learning from one’s own mistakes is already remarkable; learning from others’ mistakes—that’s genius.
Those persisting in repeating their own mistakes needn’t feel too bad—at least over 85% of people in the stock market are like that. Having company is nice. (2012-06-26)
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