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by
David Clark
Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices. . . . Consequently,
Last but not least, there is the problem of leverage: to get rich quickly, one often has to use leverage/debt to amplify small price swings into really huge gains. If things go against us, they can also turn into really large losses.
“Knowing what you don’t know is more useful than being brilliant.”
Diversification creates a situation that basically mimics the market or an index fund. An adviser who counsels diversification never looks very good or very bad, just average.
It’s much easier to keep a sharp eye on our basket if there are only ten eggs in it.
“Mimicking the herd invites regression to the mean.”
“I’ve never been able to predict accurately. I don’t make money predicting accurately. We just tend to get into good businesses and stay there.”
“An isolated example that’s very rare is much easier to endure than a perfect sea of misery that never ceases.”
The perfect example of a mediocre business that goes from one problem to another is any airline—which has union problems and fuel cost problems and is in a price-competitive business. This bit of wisdom is also applicable to our personal lives; it is far easier to endure a brief moment of intense pain than it is to suffer a misery that drags on year after year.
He also learned that if he stays fully invested in the market as it rises, he won’t have any cash to invest with when the market crashes. It doesn’t matter how good the odds are; if you don’t have any cash to bet with, you are never going to make a dime.
There must be some wisdom in the folk saying: ‘It’s the strong swimmers who drown.’ ”
“A great business at a fair price is superior to a fair business at a great price.”
plans,” I remember Nebraska Furniture Mart’s founder, Mrs. B., who, in response to a question about having a business plan, replied in her thick Russian accent, “Yeah, sell cheap and tell the truth.” She was a business genius.
“With few exceptions, democracy has not brought good government to new developing countries. . . .
Lee’s book From Third World to First: The Singapore Story
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.”
That is why Berkshire’s annual report is always quick to point out Warren and Charlie’s screw-ups and the lessons they learned—such as their investment in US Airways, which they thought going in was a good investment
People don’t like to give up long-held ideas. Doing so makes them uncomfortable and fills them with fear. And change usually requires an enormous amount of work. Probably the hardest “idea destruction” thought process that Charlie and Warren ever went through was the closing of Berkshire Hathaway’s textile business. Even when it became apparent that the business didn’t have a future and would never make any real money, they still kept it open.
Reading personal biographies allows one to experience multiple lives and successes and failures; reading business biographies allows one to experience the vicissitudes of a business and learn how problems were solved.
“The best legal experience I ever got was when I was very young. I asked my father why he did so much work for a big blowhard, an overreaching jerk, rather than for his best friend Grant McFadden. He said, ‘That man you call a blowhard is a walking bonanza of legal troubles, whereas Grant McFadden, who fixes problems promptly and is nice, hardly generates any legal work at all.’ ”
it is the people with problems who are going to bring in the business. Which is one of the reasons that Charlie got out of the law business.
“All human beings work better when they get what psychologists call reinforcement. If you get constant rewards, even if you’re Warren Buffett, you’ll respond. . . . Learn from this and find out how to prosper
Warren advised him to appeal not to their sympathies but to their greatness.
“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add—and that your best course is to trust some expert.”
to solve all problems in one way. You know the saying: ‘To the man with a hammer, the world looks like a nail.’ This is a dumb way of handling problems.”
“We should treat our body like it is the only car we will ever own.” Charlie took Warren’s car analogy to heart and figured out that the less he “drove his body,” the less it would wear out and the longer it would last. Which is why
I’ve heard Warren say a half a dozen times, ‘It’s not greed that drives the world, but envy.’”
I can attest that envy and jealousy are the least enjoyable. Wrath, greed, sloth, gluttony, and lust—particularly lust—can all be great fun as one travels the self-indulgent road to disaster; however, envy and jealousy, even in small doses, will make one utterly miserable.
As we said earlier, in the world of finance a terrible thing happens on average about once every eight to ten years.
“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up, and boy, does that help, particularly when you have a long run ahead of you.”
“You should never, when faced with one unbelievable tragedy, let one tragedy increase into two or three because of a failure of will.”
“I think people who multitask pay a huge price.”
“Dean Kendall of the University of Michigan music school once told me a story: ‘When I was a little boy, I was put in charge of a little retail operation that included candy. My father saw me take a piece of candy and eat it. I said, “Don’t worry. I intend to replace it.” My father said, “That sort of thinking will ruin your mind. It will be much better for you if you take all you want and call yourself a thief every time you do it.”’ ”
“It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”
Charles Darwin’s thoughts on evolution, Stephen Jay Gould’s thoughts on Darwin’s thoughts, Albert Einstein’s unified field theory, Walter Bagehot’s 1873 treatise on central banking, Isaac Newton and Gottfried Wilhelm Leibniz’s development of calculus, Marcia Stigum’s voluminous work on the money market, Marquis and Jessie R. James’s history of the Bank of America, the conflict between Robert Oppenheimer and Edward Teller over the development of the hydrogen bomb, and E. O. Wilson’s theories of sociobiology all in the same breath.
