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By three methods may we learn wisdom: First, by reflection, which is noblest; second, by imitation, which is easiest; and third by experience, which is the bitterest. —Confucius
There are errors of omission, Buffett and Munger not buying Walmart, and errors of commission, Stanley Druckenmiller buying tech stocks as they reached their peak in early 2000.
You can no more learn to invest through reading a book than you can read about heart surgery and perform a triple bypass.
The most important thing successful investors have in common is worrying about what they can control.
Warren Buffett said, “What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know.”
The most important lesson that investors should take from the person who taught us the difference between value and price is that value investing is not a panacea. Cheap can get cheaper. Rich can get richer. Margins of safety can be miscalculated, and value can fail to materialize.
Graham taught his students and his readers that prices fluctuate more than value, because it is humans who set price, while businesses set value.
In the four years from 1929 to the bottom in 1932, Graham lost 70%. If such a careful and thoughtful analyst can lose 70% of his money, we should be very careful to understand that while value investing is a wonderful option over the long term, it is not immune to the short‐term vicissitudes of the market.
It's critically important to be aware of value, but it's more important not to be a slave to it. Graham taught us that there are no iron‐clad laws in finance and that cheap can get cheaper.
“Speculation is as old as the hills. Whatever happened in the stock market today has happened before and will happen again.”
“They said there are two sides to everything. But there is only one side to the stock market; and it's not the bull side or the bear side, but the right side.”
“Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.”
“If you find yourself in a hole, stop digging.”
“It is strange the way the ignorant and inexperienced so often and so undeservedly succeed when the informed and the experienced fail.”
“Not Can, But Will College Teaching Be Improved,” 94% of professors rated themselves above their peer group average.
Charlie Munger once said, “The iron rule of life is that only 20% of people can be in the top fifth.”
“They made absolutely no allowance in the episode of LTCM for the possibility of their not understanding markets and their methods being wrong.”
Intelligence combined with overconfidence is a dangerous recipe when it comes to the markets.
But a methodology means something that is repeatable. It means having a process. The stock market throws far too many curve balls for you to wing it.
Investors who confine themselves to what they know, as difficult as that may be, have a considerable advantage over everyone else. —Seth Klarman
Charlie Munger once said, “If you play games where other people have the aptitudes and you don't, you're going to lose.”
“Attribution bias refers to the tendency of people to attribute their successes to their own ability and their failures to external ‘unlucky’ forces.”
“Ideas are part of who we are. They become like possessions. Especially publicly. I mean, flip flopping is a bad word. I love changing my mind!”
Four out of every seven common stocks in the United States have underperformed one‐month Treasury bills.
In a winner's game the outcome is determined by the correct actions of the winner. In a loser's game, the outcome is determined by mistakes made by the loser.1 —Charlie Ellis
Michael Mauboussin says, “Fundamentals are how fast the horse runs and expectations are the odds.”
There's an old adage in finance, “Concentrate to get rich, diversify to stay rich.”
“Even a horse with a very high likelihood of winning can be either a very good or a very bad bet, and the difference between the two is determined by only one thing: the odds.”5
Keynes is incorrectly attributed to have said: “It is better to be roughly right than precisely wrong.”
Michael Mauboussin said: “The main issue is that putting yourself in a position to enjoy good luck also puts you in a position to lose.”4
You need patience, discipline, and an ability to take losses without going crazy. —Charlie Munger Kiplinger, 2005
“People calculate too much and think too little.”
Big losses are in the fabric of long‐term investing. And if you're not willing to accept them, you will not harvest the long‐term returns that the market has to offer.
Running at the first sign of trouble in financial markets is dangerous because it's almost never a saber‐toothed tiger and the “no harm no foul” rules don't apply in financial markets.
You will do a great disservice to yourselves, to your clients, and to your businesses, if you view behavioral finance mainly as a window onto the world. In truth, it is also a mirror that you must hold up to yourselves. —Jason Zweig
