When I went to Puerto Galera island every time, I need to take a crab boat from Batangas pier. During traveling in the ocean, the waves are always big. The genius part is that the crab boat has two bars in its two side, just like people has two legs, which enable the Crab boat sailing smoothly and safely.
JP Morgan once said market is always fluctuating. In Chinese stock market, the market is even more volatile comparing to the mature Stock market like US NY Exchange. So how to survive in the volatile stock market, not vomit and not be thrown into the ocean. While I was traveling in the ocean, I came up the Crab Boat is a good model combined with value investment.
Here is my Crab Boat Model.
In my mind, Circle of Competence, Moat and Margin of Safety is the three basic elements in value of investment. If I take the Crab Boat as model, they are the three engines of the boat and Enable the boat travel far distance. However, the market like the ocean, is volatile in most times. If there is no good balance, it’s easy to be thrown away by the waves even if the engines are superb. In the Crab Boat, there are one bar in each side to make the boat in good balance, even in extreme condition. In the value investment, Cash and Emotion control is the two bars to make balance in the up and down market. Buffet said that Berksheire always retain 20 billions cash as minimum. If the market is down, he can buy good businesses in much discounted price. As emotion control, Mr Market always emotional, it’s be influenced by it, excited and depressed with market fluctuateed. The right way is stay away stock market and be rational, when Mr Market offer u a extreme high price, sell it; if he offer u extreme low price, buy it. In most time, don’t care about it, just wait Mr Market make mistakes.