Sunday, December 19, 2010

Swimming naked

My friend recently read a book regarding Warren Buffer, he ask me what's the meaning of the quote: "You only find out who is swimming naked when the tide goes out."

This is one of the famous quote in Warren Buffer's Letter to share holder. Few year's back, I also not seem to understand the actual meaning. When I read more books about Warren Buffer, finally I understood the whole story.

The story is, when the tide is up, everything will float, good stuff, bad stuff all float very high. (Even the supper heavy pig will float as well) At this time, if I ask you to point out who is naked, it's very difficult. You can only tell when the tide goes out.

In the investment world, we should try to prevent invest in "naked" company (the problematic company). Especially when tide goes high (Stock Market Index goes high), good stocks and bad stocks all move high and break the record. So do you know how to find out who is naked now? Try to find out how's the company doing (last few quarters when economy not so good) in the past before you invest, ask yourself am I buying at the high end?

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