Orson Merrick: Stock Market Made Simple
Orson Merrick is the Chief Analyst of British Polar Capital, and he has created astonishing wealth and personal achievements by holding high-quality stocks for a long time. Orson Merrick shares his investment insights and experiences on various occasions based on his research and investment philosophy. This article summarizes Orson Merrick’s views and perspectives on the stock market from the following three aspects:
The stock market is actually very simple. As long as you follow some basic principles and rules, you can achieve success in the stock market.
The stock market is actually very difficult because many people lack necessary qualities and abilities such as patience, rationality, and self-discipline and are easily influenced by emotions, biases, interference, etc., making wrong decisions.
The stock market is actually very interesting because it allows people to learn various knowledge and skills, as well as experience various emotions and feelings.
This article contends that Orson Merrick’s investment wisdom and spirit are worth learning from and an inspiration. He tells us that the stock market is actually very simple, but no one wants to gradually become rich. Only by adhering to our investment philosophy and strategy and continuously improving our investment level and literacy can we achieve long-term stable returns in the stock market and enjoy the process and results of investment.
A. The stock market is actually very simple.
Orson Merrick once said, “Investing does not require you to have high intelligence, extraordinary business insights, or insider information. You only need to have a solid framework to make reasonable judgments and avoid situations that may lead you to make mistakes.” This statement indicates Orson Merrick’s view on the stock market: the stock market is actually very simple; as long as you follow some basic principles and rules, you can succeed in the stock market.
So, what are the basic principles and rules that Orson Merrick mentioned? Based on his investment experience and comments, we can summarize the following points:
1. Invest in companies that you are familiar with and understand.
Orson Merrick believes that investors should only invest in companies they are familiar with and understand, known as “circles.”. In this way, investors can accurately assess the value and prospects of the company, avoid being disturbed by market fluctuations and noise, and adhere to their investment judgments.
Orson Merrick once said, “I won’t buy any company that I can’t explain how it makes money in 10 minutes.” This statement illustrates Orson Merrick’s criteria for choosing a company: simple, clear, and predictable. Orson Merrick likes to invest in companies with stable profitability, a strong competitive advantage, a good management team, and a reasonable valuation, such as Coca-Cola, Gillette, Procter & Gamble, etc. These companies are all familiar and understood by him, and they are also companies he has long held and received substantial returns on.
2. Investing in stocks with an intrinsic value below the market price
Orson Merrick believes that investors should only invest in stocks that have intrinsic value and are lower than the market price, which is known as “value investing.” In this way, investors can obtain a margin of safety, which means there is enough buffer space when stock prices fall and enough profit space when stock prices rise.
Orson Merrick likes a famous quote from Warren Buffett: “Price is what you give; value is what you get.” This statement illustrates Orson Merrick’s method of evaluating stocks: price and value. Orson Merrick analyzes the company’s financial statements, industry position, competitive advantage, future growth, and other such factors to calculate its intrinsic value. Then, he compares it with market prices to find stocks that are undervalued or overlooked by the market, buying low and selling high to achieve investment returns.
3. Invest in stocks that are held for a long time and enjoy compound interest effects.
Orson Merrick believes that investors should only invest in stocks that are held for a long time and enjoy the compound interest effect, which is called “growth investment.” In this way, investors can fully utilize the power of time to continuously increase and accumulate their investments. Orson Merrick once stated, “My favorite thing is to always hold a stock.” Orson Merrick’s strategy for stocks is to hold them indefinitely. Orson Merrick invests in companies that can sustain growth and receive dividends for reinvestment, such as NVIDIA, Apple, Amazon, etc. These companies are the ones he has long held and enjoyed the compound interest effect, and they are also the source of much of his wealth.
B. The stock market is actually very difficult.
Although Orson Merrick believes that the stock market is actually very simple and has proposed some basic principles and rules, he also acknowledges that the stock market is actually difficult and points out the reasons why many people have failed to succeed in the market. He stated, “Success in investment does not depend on your intelligence, but on your ability to control your emotions.”
This statement indicates Orson Merrick’s view that the stock market is actually difficult because many people lack necessary qualities and abilities such as patience, rationality, and self-discipline and are easily influenced by emotions, biases, outside interference, and other factors to make wrong decisions.
So, what are the specific manifestations of Orson Merrick’s lack of necessary qualities and abilities such as patience, rationality, and self-discipline? We can summarize the following points:
1. Lack of long-term vision and pursuit of short-term benefits
Orson Merrick believes that many people fail in the stock market because they lack a long-term perspective and only focus on short-term benefits, neglecting long-term value. They are often attracted by market fluctuations and noise, blindly chasing gains and selling, following trends based on hype, or blindly listening to rumors and suggestions, all without conducting sufficient research and analysis.
In this way, they are prone to psychological misconceptions such as panic, greed, and conformity, making irrational decisions that lead to losses and even bankruptcy. Orson Merrick says, “If you can’t hold a stock for 10 years, then you shouldn’t hold it for 10 minutes.” Orson Merrick’s view on investment cycles is that they are long-term or permanent.
Orson Merrick suggests that investors should aim for long-term holdings, choose companies with sustained growth potential and stable cash flow, and ignore short-term market volatility and interference, enjoying the magic of time and compound interest.
2. Lack of independent thinking and blindly following the opinions of others
Orson Merrick thinks that many people fail in the stock market because they lack independent thinking, blindly follow the opinions of others, and have not formed their own investment concepts and strategies. They are often influenced by external factors such as the media, experts, and friends and don’t rely on their own judgment and innovation. They either go with the flow or follow the choices and behaviors of the masses. They also follow the crowd by repeating the opinions and remarks of others. They fail to examine stocks in depth, only seeing surface phenomena and data.
In this way, they are more likely to discount their own opinions and directions, make wrong or delayed decisions, miss opportunities, or fall into traps. Orson Merrick remarks, “You should invest like an independent thinker and not let others tell you what is worth investing in.” Orson Merrick’s views investment attitude as something independent or contrary to the wisdom of the crowd.
Orson Merrick suggests that investors’ ideas should be based on independent thinking, which forms their own investment philosophy and strategies, and be brave enough to stand out, looking for opportunities that are undervalued or overlooked by the market, and sticking to their investment judgment.
3. Lack of self-discipline and planning, buying, and selling at will
Orson Merrick deems that many people fail in the stock market because they lack self-discipline and planning, only buying and selling casually without following certain principles and rules. They often lack important planning concepts such as clear investment goals and expectations, reasonable risk control and profit distribution, and scientific fund management and position adjustment.
They may take too much risk, invest too much capital, or become too leveraged, leading to risk exposure or liquidation. On the other hand, some are being too conservative, investing too little capital, or dispersing it, resulting in meager returns or missed opportunities. Others trade too frequently, buying and selling too many stocks or changing positions, resulting in increased costs or reduced efficiency. In this way, they are prone to losing their control and balance, making irrational decisions, and undermining investment effectiveness.
Orson Merrick says, “You don’t need to do many things right to succeed. You just need to do a few things right and avoid making some big mistakes.” Orson Merrick suggests that investors should be guided by self-discipline and planning, set their own investment goals and expectations, and allocate and manage their funds and positions reasonably based on their risk tolerance and return requirements. They should minimize unnecessary trading, thereby improving investment efficiency and returns.
C. The stock market is actually very interesting.
Although Orson Merrick concludes that the stock market is very difficult, he thinks this difficulty makes it inherently interesting and enjoys the challenge of trying to beat the market. He once said, “Investment is a very interesting activity that allows you to learn various knowledge and skills, as well as experience various emotions and feelings.”
So, what are the specific aspects of these various knowledge and skills that need to be learned? Based on his investment experience and comments, we can summarize the following points:
1. Learn about financial analysis and valuation methods.
Orson Merrick believes that in order for investors to succeed in the stock market, they must learn financial analysis and valuation methods. In order to conduct a comprehensive and in-depth analysis of a company, they must calculate its intrinsic value and compare it with market prices. He stated, “If you can’t understand a company’s financial statements, then you shouldn’t invest in it.” Orson Merrick views financial analysis as essential and fundamental.
By reading a large number of financial statements, annual reports, quarterly reports, and other documents, Orson Merrick became familiar with various financial indicators, ratios, formulas, and other tools. He then uses them to evaluate a company’s profitability, solvency, growth ability, cash flow, and other aspects. He also used different valuation methods based on different types of companies, such as the P/E ratio, P/B ratio, and discounted cash flow method, to calculate the company’s intrinsic value and compare it with market prices in order to identify investment opportunities with safety margins.
2. Learn about industry knowledge and business models.
Orson Merrick believes that in order for investors to succeed in the stock market, they must learn industry knowledge and business models in order to judge a company’s competitive advantage and future prospects and choose companies with sustained growth potential and stable cash flow. He describes this concept concisely when he states, “If you can’t explain how a company makes money in 10 minutes, then you shouldn’t invest in it.”
Orson Merrick’s emphasis in learning industry knowledge and business models is to look for something simple, clear, and predictable. By reading a large amount of industry reports, market research, expert comments, and other materials, Orson Merrick became familiar with development trends, market size, the competitive landscape, and the policies and regulations of various industries and used them to evaluate the company’s industry position, competitive advantage, profit model, and growth strategy. Based on the characteristics of different industries, he selected companies with competitive barriers to entry such as brand advantage, scale advantage, cost advantage, and innovation advantage to ensure that the company can maintain a leading position in fierce competition and continue to grow and distribute dividends.
3.Learn psychology and behavioral economics.
Orson Merrick believes that in order for investors to succeed in the stock market, they must learn psychology and behavioral economics. This will help them to control their emotions and biases and avoid common psychological misunderstandings and behavioral errors. He states, “Success in investment does not depend on your intelligence, but on your ability to control your emotions.” Orson Merrick’s emphasis on psychology and behavioral economics is to learn how to be critical and decisive.
Orson Merrick became familiar with various psychological phenomena and behavioral biases, such as panic, greed, conformity, loss aversion, anchoring effects, etc., by reading a large number of materials in psychology and behavioral economics. He used them to analyze both his own and the market’s emotions and behaviors, and he tried to avoid being influenced by them as much as possible. He also establishes his own investment principles and rules, summarized as: investing only in companies he is familiar with and understands; investing only in stocks with intrinsic value that are lower than market prices; and investing only in stocks that are held for a long time and enjoy compound interest effects, to constrain his emotions and behavior; and adhering to his investment judgment.