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Kindle Notes & Highlights
As a value investor, your ideal situation is to find a company increasing its intrinsic value. Ideally, the company would be one with a declining stock price, thus creating an even better bargain as time unfolds.
Value is what a business is worth. Price is what you have to pay to get it.
Buffett is correct, long–term bonds and other investments vulnerable to inflation should be avoided.
Buffett said he pays no attention to economic outlooks. His decisions are based simply on intrinsic business values.
stocks can’t outperform businesses indefinitely.”
“The availability of a printing press as a short-term band aid is very tempting … Inflation is a narcotic.”
he’d rather be with a guy with an IQ of 130 who thinks it is 128 than a guy with an IQ of 190 who thinks it is 240. The latter will get you into a lot of trouble.
the worst mistakes are made from the nicest graphs
On the Ideal Business Buffett: “Something that costs a penny, sells for a dollar and is habit forming.”
“Everyone talks about the big money made in real estate, but they forget to talk about the big money lost in real estate.”
While inflation is still undesirable, well-run businesses that employ relatively little capital, that throw off lots of cash and that have pricing flexibility will cope well with inflation.
rather than worry about economic projections, these brilliant investors focus on finding good businesses at bargain prices within our resilient economy.
The history of Wall Street has forever been one of boom and bust.
“If investors only had to study the past, the richest people would be librarians.”
“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Good economic characteristics Able and trustworthy management We like what the company does
If you are going to be a lifelong buyer of food, you welcome falling prices and deplore price increases. So should it be with investments.
“Do what you enjoy the most. Work for people you admire. You can’t miss if you do that.”
The documented record of how people have behaved over many years has far more predictive power than a personal interview.
Buffett noted that this illustrates why he pays so little attention to macroeconomic factors. Owning the right business is the key.
It is far more fruitful to decide whether a product can sustain itself than make economic predictions.
The danger of relying on historical statistics or formulas is that you end up betting on a 14-year-old horse with a great record but is now ready for the glue factory.
the real key to investment success is to have the right mindset with a temperament compatible with those principles.
Buffett emphasized that derivatives actually serve a useful purpose. However, when ignorance is combined with borrowed money, you get interesting outcomes.
“You don’t find out who’s been swimming naked until the tide goes out.”
“Volatility is no measure of risk to us.”
Wall Street nonsense to say that something that earns a lumpy 20% to 80% is “riskier” than something that earns a predictable 5% year after year.
“We act as if we never heard of modern finance theory, which can only be described as disgusting.”
Mark Twain: “A mine is a hole in the ground owned by a liar.”
“jealousy is the only sin you can never have any fun at.”
Buffett quoted the Southern newspaper publisher who, when asked of the secrets of his success, replied, “Monopoly and nepotism.”
Accounting is the language of business,
when accounting appears confusing, avoid the company. The confusion may well be intentional and reveal the character of the management.
Bertrand Russell, “Most men would rather die than think. Many have.”
Berkshire’s filing to issue “B” shares, which would have 1/30th the value and 1/200th the voting rights of the “A” shares.
“B” shares would create a flexible supply of shares (as each “A” share would be convertible into 30 “B” shares)
Munger concluded that one of Buffett’s tricks is that he keeps learning.
Buffett said he prefers annual reports
Diversification is a protection against ignorance, a confession that you do not know the businesses you own.”
three wonderful businesses is more than you need in this life and would serve you much better than 100 average businesses.
owning wonderful companies has worked far better than he would have predicted
Businesses should become more efficient, not less so.
At 15% a year, stock returns are growing far faster than the economy itself. Sooner or later, something has to happen.
Owning a stock means owning a piece of a business.
Berkshire seeks low-risk businesses with sustainable competitive advantages and strong capital structures.
the market exists to serve you, not instruct you.
Buffett noted one of his rules is understanding the business, to be able to have a pretty good idea where it will be in 10 years.
Munger recalled Aristotle’s observation that systems work better when perceived as fair.
Opportunity Cost – Munger noted that for any corporate stock, a bond is an alternative. You must choose the best opportunity you can understand. He summed up, “Life is a whole series of opportunity costs.” Quality People - Buffett said he looks for a manager who bats .400 and loves it. Munger noted there are many wonderful people and many awful people. Avoid the awful. Stick to those who take their promises seriously. Good Businesses – Go with those that are understandable with a sustainable edge. The pond you choose is far more important than how well you swim.
the real sin is mediocre management. That is what costs the shareholders money. It is almost impossible to overpay for good management.
