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by
Gautam Baid
Self-improvement is the best way to spend some of your time every day. And finding the time to read is easier than you think. One way to make this happen is to carve out an hour of each day just for yourself.
Time is a resource that becomes increasingly scarce for everyone with each passing second. Learn to value your time highly.
Minimize your commute time to work and outsource all of the noncore time-consuming menial tasks to free up valuable time for self-development.
An investment in knowledge pays the best interest. —Benjamin Franklin
Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day. —Charlie Munger
You’ve got to keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life. —Warren Buffett
Nassim Nicholas Taleb writes, in his book Fooled by Randomness, “Minimal exposure to the media should be a guiding principle for someone involved in decision making under uncertainty—including all participants in financial markets.”
First principles thinking is a way of saying, “Think like a scientist.” Scientists don’t assume anything. They start with questions like “What are we absolutely sure is true?” or “What has been proven?”
When Jeff Bezos started Amazon.com, in 1995, he clearly identified the first principles that would guide his business philosophy—that is, long-term thinking and a relentless focus on the customer rather than on the competition. This led Amazon to focus on things that don’t change, such as customers’ preference for low prices, fast delivery, and wider product selection, rather than on things that can and do change.
The Feynman technique has four simple steps: 1. Pick and study a topic. 2. Take out a blank sheet of paper and write at the top the subject you want to learn. Write out what you know about the subject as if you were teaching it to someone who is unfamiliar with the topic—and not your smart adult friend but rather a ten-year-old child who can understand only basic concepts and relationships. 3. When you must use simple language that a child can understand, you force yourself to understand the concept at a deeper level and to simplify relationships and connections among ideas. If you struggle,
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“Follow your passion…. I always tell college students to take the job that you would take if you were independently wealthy.”4 By doing that, the logic goes, you’ll bring more energy to your work than anybody else does. There is power in passion.
We have two lives, and the second begins when we realize we have only one. —Confucius
I was lucky to have the right heroes. Tell me who your heroes are and I’ll tell you how you’ll turn out to be. The qualities of the one you admire are the traits that you, with a little practice, can make your own, and that, if practiced, will become habit forming.
We build trust by being honest in our communications. By being authentic and sincere in both words and actions. By being transparent and admitting mistakes and sharing what we learn. By being reliable and fair in our dealings with others. Over time, as you build your network, put in your best efforts to constantly add value to others in your relationships and to build a seamless web of deserved trust (figure 5.1).
Humility is the gateway to attaining wisdom.
It states that among competing hypotheses, the hypothesis with the fewest assumptions should be selected. Other, more complicated solutions ultimately may prove to provide better predictions, but in the absence of differences in predictive ability, the fewer assumptions that are made, the better.
“The goal of investment is to find situations where it is safe not to diversify.”
Look for simple businesses that require fewer assumptions and fewer hypothetical scenarios to work out and that do not require discounting cash flows from way out into the future to justify the investment.
Yes, reading the annual reports, filings, press releases, and footnotes to the accounts is important, and occasionally, we will be able to dig out some extra detail that might give us an analytical advantage, but, in my view, understanding the big picture (the two to three key variables that really matter) is equally, if not more, important.
“Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.”11
As Albert Einstein said, “If you can’t explain it simply, you don’t understand it well enough.”
“Everything should be made as simple as possible, but no simpler.”
This is because, in our minds, wealth is always relative, not absolute.
“The little mental trick is to remember that success, money, fame, and beauty, all the things we pursue, are merely the numerator! If the denominator—shame, regret, unhappiness, loneliness—is too large, our ‘Life Satisfaction Score’ ends up being tiny, worthless. Even if we have all that good stuff!…It’s so simple. This is why you see people that ‘should be happy’ who are not. Big denominators destroy self-worth.”
Someone’s sitting in the shade today because someone planted a tree a long time ago.
If you’re glued together and honorable and get up every morning and keep learning every day and you’re willing to go in for a lot of deferred gratification all your life, you’re going to succeed.
The businesses that buy commodities and sell brands and have strong pricing power (typically depicted by high gross margins) should always remember that possessing pricing power is like having access to a large amount of credit.
In the most recent edition of the book Valuation: Measuring and Managing the Value of Companies, the authors write, “We’ve found, empirically, that long-term revenue growth—particularly organic revenue growth—is the most important driver of shareholder returns for companies with high returns on capital.
Underestimating bias from one’s own self-interest and incentives. Persuade others by asking them questions that highlight the consequences of their actions.
Appeal to interest, not to reason.
emphasized return of capital and placed it before return on capital
You can engage in all sorts of elaborate analysis, but Buffett boils down everything to whether a big discrepancy exists between the current price and the estimated value, using conservative estimates, which gives him a large margin of safety.
“Price is what you pay. Value is what you get.”
The longer the competitive advantage period (CAP), the more likely a business is worth a lot more than what the market thinks. “Durability” of the moat is the key factor. The market tends to underappreciate companies that have really strong moats because the durability often allows for the company’s runway to last longer than many expect.
“The harder I work, the luckier I get.”
Investment decisions begin with gut feelings but always should be safeguarded with logic and hard data.
The truly great businesses are literally drowning in cash all the time. They tend to earn infinitely high return on capital as they require little tangible capital to grow and are driven by intangible assets such as a strong brand name with “share of mind,” intellectual property, or proprietary technology.
Great businesses typically are characterized by negative working capital, low fixed asset intensity, and real pricing power.
Negative working capital is common in subscription-based business models in which customers pay up front for recurring service or access. Because revenue is recognized when the service is performed, which is after the cash comes in, these businesses typically have operating cash flow that exceeds net income.
If the business provides a product or service that is differentiated, has high switching costs, or is critical to customers (while constituting a minuscule percentage of overall cost), it may be able to consistently raise prices at levels exceeding inflation.
“The single most important decision in evaluating a business is pricing power [emphasis added].
Investors tend to confuse ROIIC with ROCE (return on capital employed) or ROIC. ROIIC less cost of capital drives value creation.
Great businesses create enormous wealth over long holding periods across market cycles, even in the midst of negative macro headlines about high inflation, rising interest rates, geopolitical tensions, weak macroeconomic data points, and political uncertainty.
Competitive advantages stem from various sources, including intangible assets, such as brands, patents, and licenses; switching costs; network effects; or low-cost advantages.
These costs tend to be associated with critical products (such as Oracle’s SAP software) that are so tightly integrated with the customer’s business processes that it would be too disruptive and costly to switch vendors, or with products that have high benefit-to-cost ratios (such as Moody’s).
Low-cost advantages stem from various sources, including process, scale, niche, and interrelatedness.
“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.”
Markets oscillate between extreme optimism and pessimism, which is why it is so useful to have a “reverse discounted cash flow frame of mind.” Invert, always invert.
“It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
“Market forecasters will fill your ear but will never fill your wallet.”
