Charlie Munger: The Complete Investor (Columbia Business School Publishing)

by Tren Griffin

OF COMPETENCE: the perimeter of the area within which a person has superior knowledge and expertise over the market. CONSUMER SURPLUS: the difference between what a consumer was willing to pay and what they actually pay. CONTRARIAN INVESTING: investing in companies that most other investors believe will not increase in value (i.e., not following the crowd). CORRELATION: how asset prices move in relation to each other. DEPRECIATION: an accounting allocation of the cost of a long-lived asset over its useful life. DERIVATIVES: securities that derive their value from other securities. DISCOUNTED CASH FLOW (DCF): discounting at an appropriate interest rate the net cash flows from an investment. DIVERSIFICATION: buying a number of different uncorrelated assets. DOWNSIDE: a potential loss. EARNINGS PER SHARE (EPS): measure of profitability calculated by dividing net income by the number of shares of stock. EBIT: earnings before interest and taxes. EBITDA: earnings before interest, taxes, depreciation, and amortization; Munger suggests inserting the words “bullshit earnings” instead when the term is seen. ECONOMIES OF SCALE: average costs decrease as output increases.