In recent days, different indicators and markets in the U.S. have shown positive numbers that have surprised a lot of people, even the President himself, Donald Trump, briefly tweeted about it while bragging at the same time:
https://twitter.com/realDonaldTrump/status/1090729920760893441
- realDonaldTrump
But there’s a reason behind everything. Some businesses have started to show their quarterly finance reports to show their companies’ “financial health”. A quick look at the three basic financial statements of any business — the balance sheet, the income statement and the cash flow statement — can quickly review how well or how bad a company is doing based on its number of assets, liabilities, the growth rate of its equity (one of the most important measures to determine a business’ profitability), how much cash is flowing into business, among many others.
When sitting in a Corporate Finance class, at any course of this type, you’ll always hear that, in order to maximize profit when investing in the Stock Market, one has to inevitably “diversify”, meaning, buying a bunch of different shares from a lot of businesses as a shield against the positive drop of prices in some of those businesses’ shares, so that the other ones can still provide you with profits or a compensation.
However, as Warren Buffet and Charlie Munger — the owners of Berkshire Hathaway, a multinational conglomerate company — point out during the following video, diversification is, instead, “a shield against ignorance”. It is impossible to know every business situation at any time according to Buffett. Instead, he advises people to get to know 3 great businesses very well, and then invest in them when deemed appropriate.
One way to get to know a business closely is by reading its financial statements, its annual or quarterly finance reports, and following the company’s news almost every day. By doing this, Buffett assures us that we can get somewhat rich.
Check Buffett and Munger’s complete opinion on portfolio diversification: In recent days, different indicators and markets in the U.S. have shown positive numbers that have surprised a lot of people, even the President himself, Donald Trump, briefly tweeted about it while bragging at the same time:
