Warren Buffet Does Not Understand The Stock Market

Warren Buffett, the genius financier everyone looks up to, admitted he sold his Apple stock too early, “losing” about $11B. His reasoning was described by various publications as poor stock market timing and admittedly against the advice of Charlie Munger, his partner in Berkshire Hathaway.

The key lesson to learn here is that you cannot time the stock market. Not even Warren Buffett can. For a couple of reasons, the stock market is not a free market. It provides inequitable ways of trading, offering different trading options and speeds to the general public than the high-frequency trading mechanisms provided to financial institutions. The stock market violates many other marketplace principles.

The most important mistake Warren Buffett made in this context is to invest in stock rather than a company. There is a difference, you know. The price of a stock in the public exchange is merely a derivative of what other people think of the stockā€”a derivative of public populism. The value of a company is dependent on its capacity for renewal amidst constant change.

Invest in a company you understand, not the trailing indicator of its stock.

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