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August 8 - August 20, 2019
The careful investor, when he hears such tales, should ask a key question: At what price is this company a good buy? What price is too high?
have a margin of safety in case your analysis is flawed.
making a profit should not be a primary reason for owning your home. You can rent instead and do about as well financially.
the non-quantified benefits of homeownership: You are your own boss, able to make changes and improvements at will without prior approval from a landlord. If you have a fixed-rate loan or have paid for your house in full, you have the security of knowing that your future monthly costs are controlled.
it is often better to sell losers before you have owned them for over a year.
When making an investment, it is important to understand how easy it might be to sell later, a feature known as liquidity.
Because you can’t get out in time when trouble is coming, the excess returns you expect from illiquid investments may be offset by the economic impact of unforeseen future events.
The lesson of leverage is this: Assume that the worst imaginable outcome will occur and ask whether you can tolerate it. If the answer is no, then reduce your borrowing.
Fortune’s Formula,
Some key features of the Kelly Criterion are: (1) The investor or bettor generally avoids total loss; (2) the bigger the edge, the larger the bet; (3) the smaller the risk, the larger the bet.
Investing heavily in extremely favorable situations is characteristic of a Kelly bettor.
What if you want the payouts to continue “forever,” as you might for an endowment?
annual future spending should be limited to the inflation-adjusted level of 2 percent of the original gift.
The nation faced a delay in the development of lifesaving therapies, a massive brain drain as our scientists moved overseas to continue their work, and the loss of our lead in stem cell technology.
The lessons learned then by our grandparents were forgotten after two generations.
The 2008 collapse in housing prices had the same cause: unlimited unsound loans to create highly leveraged borrowers.
apparent excess returns like those for LTCM in normal times may be illusory as they may be more than offset by infrequent large losses from extreme events.
notions like the efficient market hypothesis and its relative, the belief that investors are rational,
These products cost the US economy several trillion dollars in forever-lost gross national product and societal waste, and caused comparable damage worldwide. It’s worth taking time to understand them.
How could so many fees be collected and yet leave anything that could be sold for a profit to the buyers of the CMO shares? This was done via financial magic.
Between 2004 and 2008, five major investment banks—Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and Lehman Brothers—had increased their leverage to something like 33:1,
Those who turned in a vehicle to be scrapped, and then bought another car, were paid up to $4,500 in a program known as Cash for Clunkers. Spun as good for the environment, the only requirement was that the new purchase get gas mileage of one to four miles a gallon more, depending on the category of vehicle. The environmental benefits of this small gain in mileage were more than offset by the extra pollution produced in the manufacture of a whole new automobile.
it would seem to be in the public interest to employ as many of those idle beneficiaries as possible in doing useful work. Programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC), which I remember from my childhood, built roads, bridges, and public works during the 1930s, and the improvement in our infrastructure benefited us all for decades.
Like a Ponzi scheme, it’s not easy to tell when it will end. If you bet against it too early you can be ruined in the short run even though you are right in the long run.
Our corporate executives speculate with their shareholders’ assets because they get big personal rewards when they win—and even if they lose, they are often bailed out with public funds by obedient politicians. We privatize profit and socialize risk.
These executives claim that their compensation inspires them to be the creative engines of capitalist society, benefiting all of us. The crisis of 2008 is one of our rewards.
corporations—their legal existence already being permitted and regulated by the state—should be required to conduct democratic elections following the usual voting rules in our American democracy.
How would you like to live in a country where any “insider” could cast ten votes and any “outsider” got only one?
Our economy slowly recovered in the years following the 2008–09 crisis. However, little has been done to add safeguards to prevent a recurrence.
Education has made all the difference for me.
Education builds software for your brain. When you’re born, think of yourself as a computer with a basic operating system and not much else. Learning is like adding programs, big and small, to this computer, from drawing a face to riding a bicycle to reading to mastering calculus. You will use these programs to make your way in the world.
I learned at an early age to teach myself.
Gambling now is largely a socially corrosive tax on ignorance, draining money from those who cannot afford the losses.
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger.
a much bigger idea of fundamental importance for all investors, the recognition that the group I call the politically connected rich are the dominant economic and political power in the United States. This is a key concept for understanding what happens in our society and why it happens.
I object to gain of wealth through political connections rather than earning it by merit.
Simplistically, there are two types of rich, those who use government to tilt the playing field in their favor and those who don’t.
A revenue-neutral flat tax could make the tax code simple and fair, and would catch those who currently are getting a free ride from the rest of us.
Having an idea that benefits society is the first step. The hardest part, more often than not, is passing laws to implement it.
Gridlock between uncompromising factions was one cause of the fall of the Roman Empire.
Of great importance for long-term investors is whether the US will be the dominant world power in the twenty-first century, or whether we have peaked, dissipating our strength in costly foreign wars, financial mismanagement, and domestic strife.
Economists have found that one factor has explained a nation’s future economic growth and prosperity more than any other: its output of scientists and engineers. To starve education is to eat our seed corn. No tax today, no technology tomorrow.
To preserve the quality of my life and to spend more of it in the company of people I value and in the exploration of ideas I enjoy, I chose not to follow up on a number of business ventures, although I believed that they were nearly certain to become extremely profitable.
Life is like reading a novel or running a marathon. It’s not so much about reaching a goal but rather about the journey itself and the experiences along the way.
