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Started reading
May 10, 2024
lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test one’s own beliefs, and many more.
Especially important examples of these models include the redundancy and backup system models from engineering; the compound interest model from mathematics; the breakpoint, tipping moment, and autocatalysis models from physics and chemistry; the modern Darwinian synthesis model from biology; and cognitive misjudgment models from psychology.
Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles. He will not deviate from these principles, regardless of group dynamics, emotional itches, or popular wisdom that “this time around it’s different.”
Often, as in this case, Charlie generally focuses first on what to avoid—that is, on what not to do—before he considers the affirmative steps he will take in a given situation.
“Quickly eliminate the big universe of what not to do; follow up with a fluent, multidisciplinary attack on what remains; then act decisively when, and only when, the right circumstances appear.”
“We have three baskets for investing: yes, no, and too tough to understand.”
he attempts to assess and understand competitive advantage in every respect—products, markets, trademarks, employees, distribution channels, societal trends, and so on—and the durability of that advantage.
“a great business at a fair price is superior to a fair business at a great price.”
Charlie’s exhaustive screening process requires considerable self-discipline and results in long periods of apparent inactivity. But, as Charlie says, “Hard work is an essential element in tracking down and perfecting a strategy, or in executing it.” For Charlie and Warren, the hard work is continuous, whether it results in current investing activity or not—and usually it does not.
While poor outcomes are excusable in the Munger–Buffett world—given the fact that some outcomes are outside of their control—sloppy preparation and decision-making are never excusable because they are controllable.
Preparation “The only way to win is to work, work, work, work, and hope to have a few insights.” Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day. More important than the will to win is the will to prepare. Develop fluency in mental models from the major academic disciplines. If you want to get smart, the question you have to keep asking is “Why, why, why?”
Intellectual humility Acknowledging what you don’t know is the dawning of wisdom. Stay within a well-defined circle of competence. Identify and reconcile disconfirming evidence.
Resist the craving for false precision, false certainties, etc. Above all, never fool yourself, and remember that yo...
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Think forward and backward: Invert, always invert.
Allocation Proper allocation of capital is an investor’s number one job. Remember that the highest and best use is always measured by the next best use (opportunity cost). Good ideas are rare—when the odds are greatly in your favor, bet (allocate) heavily. Don’t fall in love with an investment—be situation-dependent and opportunity-driven.
Be alert for the arrival of luck.
Decisiveness When proper circumstances present themselves, act with decisiveness and conviction. Be fearful when others are greedy and greedy when others are fearful. Opportunity doesn’t come often, so seize it when it does. Opportunity meeting the prepared mind—that’s the game.
Face your big troubles, don’t sweep them under the rug.
Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.
Darwin’s result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist in that he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact.
people of whom Philip Wylie observed, “You couldn’t squeeze a dime between what they already know and what they will never learn.”
After all, the theory of modern education is that you need a general education before you specialize.
His rule for all the Braun Company’s communications was called the five Ws: You had to tell who was going to do what, where, when, and why.
And if you wrote a letter or directive in the Braun Company telling somebody to do something and you didn’t tell him why, you could get fired. In fact, you would get fired if you did it twice.
when Jack Welch16 came into General Electric, he just said, “To hell with it. We’re either going to be number one or number two in every field we’re in or we’re going to be out. I don’t care how many people I have to fire and what I have to sell. We’re going to be number one or number two or out.”
