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Kindle Notes & Highlights
by
Tren Griffin
Read between
June 18 - June 27, 2020
gumption.
By being careful about things, like staying inside a circle of competence, high IQ can remain a big positive for an investor, as it is for Munger.
chutzpah.
Genuine confidence is as valuable as false confidence is dangerous.
The principal problem with ideology is that you stop thinking when it comes to hard issues. Munger believes in regularly taking your best ideas, tearing them down, and looking for flaws as a means of improving yourself, which is hard to do if you are an ideologue.
7. Long-Term Oriented
For this reason, he said once that accumulating “the first $100,000 is a bitch.”
Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. —CHARLIE MUNGER, POOR CHARLIE’S ALMANACK, 2005
8. Passionate
9. Studious
scuttlebutt
I hardly know anybody who’s done very well in life in terms of cognition that doesn’t have somebody trusted to talk to. Einstein would not have been able to do what he did without people to talk to. Didn’t need many but he needed some. You organize your own thoughts as you try and convince other people. It’s a very necessary part of operations. If you had some hermit sitting on a mountain, he wouldn’t do very well. —CHARLIE MUNGER, CNBC INTERVIEW, 2014
For most everyone else, only continual hard work and persistence will make them into a sound Graham value investor.
As is the case for many aspects of the human condition, one person’s strength is often a flip side of what may create a weakness for that same person.
Everyone has aspects of their life that may expose them to mistakes based on emotions and psychological errors. Seth Karman put it this way in his book Margin of Safety: “Unsuccessful investors are dominated by emotion. Rather than responding coolly and rationally ...
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12. Frugal
axiom
“a penny saved is two pence dear,”
Benjamin Franklin wrote: “The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality: that is, waste neither time nor money, but make the best use of both. Without industry and frugality nothing will do, and with them, everything.”
Walter Schloss
I suspect that some of the frugality that can be seen in Graham value investors springs from their understanding of opportunity cost and the power of compounding. They naturally compare the value of consumption today with the value of greater consumptions tomorrow, which causes them to be frugal.
Santa Fe,
[Ike Friedman,
imprecise value is perfectly acceptable to a value investor because the Graham value investor is looking for a margin of safety that is so substantial that precise calculation is unnecessary.
Warren talks about these discounted cash flows. I’ve never seen him do one. —CHARLIE MUNGER, WARREN BUFFET SPEAKS, 2007
Valuation is not a process in which a Graham value investor makes stuff up as he or she goes along. In the view of Michael Price: “Intrinsic value is what a businessman would pay for total control of the business with full due diligence and a big bank line. The biggest indicator to me is where the fully controlled position trades, not where the market trades it or where the stock trades relative to comparable [businesses].”2 There are some businesses with certain qualities that Munger will not touch with a ten-foot pole:
intrinsic value is a reference point in the final analysis for investors as they patiently watch the price of an investment gyrate up and down in price over time. In doing a valuation analysis, Graham value investors like Munger are very conservative.
Munger talked once about the concept of margin of safety in describing Buffett’s mentor Benjamin Graham in this way: Graham had this concept of value to a private owner—what the whole enterprise would sell for if it were available. And that was calculable in many cases.
The golden rule of investing: no asset (or strategy) is so good that you should invest irrespective of the price paid. —JAMES MONTIER, GMO LETTER, DECEMBER 2013
We have to deal with things that we’re capable of understanding. —CHARLIE MUNGER, BBC INTERVIEW, 2009
Li Lu has written about how Munger has described this point to him: The true insights a person can get in life are still very limited, so correct decision making must necessarily be confined to your “circle of competence.” A “competence” that has no defined borders cannot be called a true competence. —LI LU, CHINA ENTREPRENEUR MAGAZINE, 2010
emotional intelligence, which is very different than intellectual intelligence, becomes critically important.
Fourth Variable: Determining How Much of Each Security to Buy
Our investment style has been given a name—focus investing—which implies 10 holdings, not 100 or 400. Focus investing is growing somewhat, but what’s really growing is the unlimited use of consultants to advise on asset allocation, to analyze other consultants, etc. —CHARLIE MUNGER, WESCO ANNUAL MEETING, 2010
Buffett believes that diversification is protection against not knowing what you’re doing—and when it comes to investing, nearly no one knows what they are doing. The most diversified approach is to buy a portfolio of low-fee index funds and exchange-traded funds.
Munger considers one of the saddest cases in investing to be when someone thinks they are an active investor, but in reality they have invested in so many stocks that they have become “closet indexers.
Fifth Variable: Determining When to Sell a Security
Sixth Variable: Determining How Much to Bet When You Find a Mispriced Asset
It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it’s given to human beings who work hard at it—who look and sift the world for a mispriced bet—that they can occasionally find one. —CHARLIE MUNGER, USC BUSINESS SCHOOL, 1994
Playing poker in the Army and as a young lawyer honed my business skills. … What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. —CHARLIE MUNGER, DAMN RIGHT, 2000
Around here, I would say that if our predictions have been a little better than other people’s, it’s because we’ve tried to make fewer of them. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 1998
We’ve really made the money out of high-quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high-quality businesses. And most of the other people who’ve made a lot of money have done so in high-quality businesses. —CHARLIE MUNGER, USC BUSINESS SCHOOL, 1994
Munger and Buffett are very focused on both the magnitude and persistence of the ability of a business to earn a return on capital. Return on invested capital (ROIC) is the ratio of after-tax operating profit divided by the amount of capital invested in the business. In short, how much a business earns on the capital employed in its business determines the quality of that business for Munger and Buffett. Growth of the business is, by itself, neither good nor bad. In the same 1992 letter, Buffett wrote: Growth benefits investors only when the business in point can invest at incremental returns
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Eighth Variable: Determining What Businesses to Own (in Whole or in Part)
We need to have a business with some characteristics that give us a durable competitive advantage. —CHARLIE MUNGER, BBC INTERVIEW, 2009
Judge the staying quality of the business in terms of its competitive advantage. —CHARLIE MUNGER, HARVARD LAW BULLETIN, 2001
We have to have a business with some inherent characteristics that give it a durable competitive advantage. —CHARLIE MUNGER, BBC INTERVIEW, 2009
We’re trying to buy businesses with sustainable competitive advantages at a low—or even a fair price. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2004
1. Capital Allocation Skills
Proper allocation of capital is an investor’s number one job. —CHARLIE MUNGER, POOR CHARLIE’S ALMANACK, 2005
