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Kindle Notes & Highlights
by
Gautam Baid
Read between
August 10 - September 9, 2022
This is how Warren Buffett, one of the most successful people in the business world, describes his typical day: “I just sit in my office and read all day.”2 Sitting. Reading. Thinking.
I am a better investor because I am a lifelong learner, and I am a better lifelong learner because I am an investor.
All successful investors have a common habit. They just love to read all the time.
“Curiosity is antifragile, like an addiction; magnified by attempts to satisfy it.” Thus, paradoxically, as you read more books, your pile of unread books will get larger, not smaller. That’s because your curiosity will grow with every great read. This is the path of the lifelong learner.
As you grow older and become more mature, you realize that not everything deserves a response.
avoid the risk of ruin, when making decisions, by focusing on consequences rather than just on raw probabilities in isolation. Some risks are just not worth taking, whatever the potential upside may be.
Engage in visual thinking, which helps us to better understand complex information, organize our thoughts, and improve our ability to think and communicate.
Upside potential is overrated. Downside protection is underrated.
Today, an investor’s edge is less about knowing more than others about a specific stock and more about the mind-set, discipline, and willingness to take a long-term view about the intrinsic value of a business.
To be a truly passionate investor means you are always thinking about the future and the direction of the world. It means you are always enthusiastically observing everything around you. Investing isn’t just a process of wealth creation; it is a source of great happiness and sheer intellectual delight
True expert knowledge in life and investing does not exist, only varying degrees of ignorance. This is not a problem to solve; it is simply how the world works.
The quality of our lives is the sum of decision quality plus luck.
Acknowledging that we do not know something is much more beneficial than having the incorrect answers.
There are few absolute truths in investing. The best we can do is gather evidence as diligently as possible to assess the likelihood of various outcomes.
If you can’t find businesses within your circle of competence, don’t hurriedly step outside that circle because of the fear of missing out, which is often the case in a bull market.
Simplicity is the result of long, hard work, not the starting point. The ability to reduce something to its essence is the true mark of understanding.
The more decisions you make, the less willpower you have. It’s called decision fatigue. Focus on making fewer and better decisions.
Multiple research studies have shown, time and again, that the human brain is not optimized for multitasking,
To make good investing decisions, you need to actively look for reasons not to buy the stock in question.
It is important to align your personal values with that of your investment.
“In the initial years…compounding tests your patience and in later years, your bewilderment.”
“The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them.”
Stocks can stay cheap for longer than we expect and then may be repriced much more quickly than we expect.
We should judge our businesses based on their operating results, not on the volatility of their stock prices. The stock market is focused on the latter, but investing success is based on the former.
We gain an advantage over time by staying intellectually honest while studying new ideas and existing holdings, and only investing in the few in which we think the odds are significantly in our favor.
Investors tend to become complacent and stop questioning their existing holdings when their stock prices are going up. They resume analyzing in detail only when the prices start falling. Don’t analyze your holdings only when they fall.
To make money in stocks, you need to have vision to see them, courage to buy them and patience to hold them. Patience is the rarest of the three. —Thomas Phelps
Be passionate about the business but dispassionate about the stock.
After a success, we become overly optimistic risk takers. After a failure, we become overly pessimistic and risk averse. This happens even in cases in which success or failure was merely a result of chance.
“Doing something according to pre-established rules, filters and checklists often makes more sense than doing something out of pure emotion. But we can’t have too many rules, filters or items without thinking. We must always understand what we’re trying to accomplish
The best investors make a habit of putting procedures in place, in advance [emphasis added], that help inhibit the hot reactions of the emotional brain. —Jason Zweig
“Battles are won [or lost] before they are fought.”
You must focus on capital preservation above all else. Value investors always think about the potential downside risks first when evaluating a potential investment.
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
Journaling by hand reduces the possibility of hindsight bias. It is hard to look at your own writing and deny your previous thoughts. A periodic review is an important part of the process. This is how you start getting better. Realizing where you make mistakes, why you make them, and what the common mistakes are that you tend to make all can help you improve over time.
We may be right a lot of the time, but it may well be for the wrong reasons. This self-realization can be humbling. It is also how we learn and improve.
When you force your hand to write something, it channels your thoughts in the same direction. Journaling turns out to be not just a tool for thinking but also a highly effective medium for focusing our thoughts.
It is better to miss rewarding a desirable behavior than to produce an incentive system that promotes cheating behavior, because bad behavior, once rewarded, is habit forming. And then it spreads.
A system is responsible in proportion to the degree that the people who make the decisions bear the consequences. —Charles Frankel
The key to investing success is not how much you know but how you behave.
the investing public pricing shares based not on what they think their fundamental value is but rather on what they think everyone else thinks their value is or on what everybody else would predict the average assessment of value to be. This is a common phenomenon during sector- or asset-class-specific bubbles.
Bubbles are more of a social phenomenon than an economic or financial one.
If bargaining power is permanently shifting from a business to its customers or suppliers, then the amount of working capital needed by the business just to stand its ground in terms of unit volume and competitive position will increase. That increase is (c) in Buffett’s equation and should be treated as a charge against earnings.
“Value is destroyed, not created, by any business that loses money over its lifetime, no matter how high its interim valuation may get.”
intelligent people make decisions based on opportunity costs—in other words, it’s your alternatives that matter.
In today’s world of instant information and fast-paced innovation, cheap securities increasingly appear to be value traps;
Most of the time, switching from a high P/E stock to one with a low P/E proves to be a mistake.
expensive is expensive for a reason and cheap is cheap for a reason.
When you see a deep value stock suddenly break down on high volumes with no visible explanation, take notice. You are likely observing a value trap.
Cyclicality of earnings. A low P/E stock may look cheap because the business is enjoying cyclically peak earnings, but the normalized P/E may not really be low if adjusted for cyclicality.
