Warren Buffett: Do this before you buy any stock
Dear CMQ Investors,
This is a simple tool you can use before buying a stock (or just about anything). I borrowed it from Warren Buffett, and it has helped me avoid a lot of bad decisions over the years.
Take out a one-page sheet of paper
Write “I am buying the [name of stock] at [current market cap] because…”
Use the page to detail your reasoning
👉 Remember This: If you cannot write an answer, you should not buy the stock.
Why does it work?
As I’ve said before, my goal is to figure out what works and understand why it works. There are two reasons this tool works.
Reason #1: It becomes a decision journal. I am currently reading Think Twice by Michael Mauboussin. That book says the following about decision journals:
We humans have an odd tendency: once an event has passed, we believe we knew more about the outcome beforehand than we really did. This is known as hindsight bias. The research shows people are unreliable and recalling how an uncertain situation appeared to them before finding out the results. […] A decision-making journal is a cheap and easy routine to offset hindsight bias and encourage a fuller view of possibilities.
Reason #2: It slows you down so you can avoid “cocaine brain”. See this for more: Harvard Research Says Investing And Cocaine Have The Same Effect To Your Brain
Should we make more posts like this? 🤔
I think you will enjoy these podcasts…
🎧 Warren Buffett's Warning To Investors in 1999 (And 2021) | (Apple Podcasts) (Spotify)
🎧 How Warren Buffett Got Richer Than The Competition | (Apple Podcasts) (Spotify)
🎧 Warren Buffett's $100 Billion Investing Lesson | (Apple Podcasts) (Spotify)
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