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March 29, 2020 - November 15, 2024
The Money Masters by John Train,
Berkshire continues to represent solid value, lower-than-average risk, and unparalleled quality. It is a superb company with better relative value than almost anything else in the U.S. stock market.
organizational theory
Ajit Jain, who is often talked about as being Buffett’s replacement now,
futility of growing corn for fuel
If Berkshire bought it, should I buy it too? Buffett and Munger are clear in their advice—people should learn from them and model their advice rather than copy their behavior. The main reason is this: Unless you find yourself in the enviable position that Berkshire operates in, you would
instead of copying, understand why they made the decisions they did. Then apply those insights to your own decisions and your own position.
the best investment you can make is in yourself.
Ben Graham. Graham’s books – Security Analysis (1934) and The Intelligent Investor (1949)
Value is what a business is worth. Price is what you have to pay
The only issues are price and value.
emphasizes a large margin of safety. The strategy is not to buy a dollar of value for 97 cents.
intangible items as management talent and franchise value. It is Buffett’s genius in identifying and evaluating these intangibles that sets him apart from the crowd.
long–term bonds and other investments vulnerable to inflation should be avoided.
True to Graham’s principles, Buffett said he pays no attention to economic outlooks. His decisions are based simply on intrinsic business values.
What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves. Unfortunately, however, stocks can’t outperform businesses indefinitely.”
“Anything that can’t go on forever will end.”
False Precision Buffett claimed that it is a terrible mistake to think that things out of a computer are precise. If you have to carry it out to three decimal places, it is too complicated.
Munger added that the worst mistakes are made from the nicest graphs and what is really needed is “enlightened common sense.”
Buffett says the party is over, and the hangover will last longer than the party.
On the Ideal Business Buffett: “Something that costs a penny, sells for a dollar and is habit forming.”
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.
Munger replied that he is a biography nut and heartily recommended biographies as a way to “make friends among the eminent dead.”
Munger went on to say that biographies give you marvelous experience, extend your range and may even improve the quality of your friends. He noted that Golden Arches and The Big Store offer great lessons on business.
the key to investment success is to buy wonderful businesses.
At the Source Capital annual meeting, Michaelis explained that there have been two basic themes in value investing: 1) buy assets and 2) buy earnings power.
The first approach focuses on buying a company well below its liquidating value.
Michaelis prefers the earnings power approach. If a company earns very high returns year after year, he explained, then, ultimately, those will be the shareholders’ returns as well.
study what makes a good business good and what makes a bad business bad.
Ben Franklin’s advice: “Keep your eyes wide open before marriage and half shut thereafter.”
buyer of food, you welcome falling prices and deplore price increases. So should it be with investments.
financial disasters come about because stupid decisions in financial companies are not accompanied by immediate pain.
“Do what you enjoy the most. Work for people you admire. You can’t miss if you do that.”
general reviewed the officers, he asked the captain what he did. The frustrated captain answered, “I don’t do one damn thing.” The general asked the same of his lieutenant. The lieutenant replied, “Well, sir, I help the captain.”
The documented record of how people have behaved over many years has far more predictive power than a personal interview.
Coca-Cola went public in 1919 at $40 per share. In 1920, the stock plunged to 19 ½ as sugar prices changed. After seven decades of wars, depression, etc. that initial $40 share would now be worth $1.8 million (About 16% compounded annually).
Munger observed that studying airlines teaches you about competition in a high fixed-cost business with a fungible commodity.
book value is seldom meaningful in analyzing the value of a business. Book value simply records what was put into the business. The key to calculating value is determining what will come out of the business.
A corporation’s return on equity approximates its equity coupon.
True investing is really more like betting against a parimutuel system, trying to find a 2-to-1 shot that pays 3 to 1. Value investing is looking for a “mispriced gamble.”
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.
Generics have been doing well, but not all brands are alike. Where the pricing umbrella has been raised too high (cigarettes, cornflakes, diapers) and where much marketing muscle has been lost to retailers, brands are quite vulnerable to generics.
the man who ordered a pizza and, when the vendor asked if he wanted it cut into eight pieces or four, the man replied, “Make it four, I could never eat eight.”
Investing is not that complicated, he explained. Other than learning accounting, which is the language of business, the real key to investment success is to have the right mindset with a temperament compatible with those principles. As long as you stay within your circle of competence (and know where the perimeter is), you will do fine.
Munger put it even more succinctly, noting that few humans have an edge if they try to follow 40 companies or more (such as yours truly). Eight or 10 in a lifetime, or even one, will get you your return.
He observed that the nature of reinsurance seems to lead to stupid things done en masse. All of a sudden, the money is gone. “You don’t find out who’s been swimming naked until the tide goes out.”
Buffett gave two criteria for evaluating the performance of management: 1) How well do they run the business? and 2) How well do they treat the owners?
Buffett said he believes in progressive taxes, though he would prefer a steeply progressive tax on consumption rather than on income.
What is needed is not quick information, but good information.
