Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life

by William Green

As he explained to me, investing is a constant process of calculating the odds: “It’s all probabilities. There is no certainty.”

First, warned Ruane, “Do not borrow money to buy stocks.” He recalled an early experience when, by using leverage, he “took six hundred dollars and multiplied it many times.” Then “the market cracked” and he was hit so hard that he sold out and was “back almost to square one.” As he discovered then, “You don’t act rationally when you’re investing borrowed money.” Second, “Watch out for momentum.” That’s to say, proceed with extreme caution “when you see markets going crazy,” either because the herd is panicking or charging into stocks at irrational valuations. Third, ignore market predictions: “I firmly believe that nobody knows what the market will do. . . . The important thing is to find an attractive idea and invest in a company that’s cheap.” For Ruane, the fourth principle was the most important of all: invest in a small number of stocks that you’ve researched so intensively that you have an informational advantage. “I try to learn as much as I can about seven or eight good ideas,” he said. “If you really find something very cheap, why not put fifteen percent of your money in it?” For regular investors, there are safer paths to success. “Most people would be much better off with an index fund,” said Ruane. But for investors aiming to beat the market, concentration struck him as the smart way to go: “I don’t know anybody who can really do a good job investing in a lot of stocks except Peter Lynch.”

Playing the odds is an extraordinarily effective way to operate, and it pervades everything they do, including how they manage their time, how they construct a calm environment in which to think, whom they hang out with and steer clear of, how they guard against biases and blind spots, how they learn from mistakes and avoid repeating them, how they handle stress and adversity, how they think about honesty and integrity, how they spend money and give it away, and how they attempt to build lives imbued with a meaning that transcends money.

Buffett and Munger, the essence of the game is to detach themselves from the madness and watch dispassionately until the bipolar market provides them with what Munger calls “a mispriced gamble.” There are no prizes for frenetic activity. Rather, investing is mostly a matter of waiting for these rare moments when the odds of making money vastly outweigh the odds of losing it. As Buffett has said, “You don’t have to swing at everything—you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’”

“The number one skill in investing is patience—extreme patience.”

When I first interviewed him in 2014, Chou had 30 percent of his assets in cash and hadn’t made a significant stock purchase in years. “When there’s hardly anything to buy, you have to be very careful,” he told me. “You cannot force the issue. You just have to be patient, and the bargains will come to you.” He warned, “If you want to participate in the market all the time, then it’s a mug’s game and you’re going to lose.”

philosopher Blaise Pascal: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

Pabrai, a loner with a misanthropic streak, was purpose-built for the bizarrely lucrative discipline of sitting alone in a room and occasionally buying a mispriced stock. Back when

Be patient and selective, saying no to almost everything. Exploit the market’s bipolar mood swings. Buy stocks at a big discount to their underlying value. Stay within your circle of competence. Avoid anything too hard. Make a small number of mispriced bets with minimal downside and significant upside.

Over lunch, Buffett explained that he and Munger always measure themselves by “an inner scorecard.” Instead of worrying how others judge them, they focus on living up to their own exacting standards. One way to tell whether you live by an inner or an outer scorecard, said Buffett, is to ask yourself, “Would I rather be the worst lover in the world and be known publicly as the best, or the best lover in the world and be known publicly as the worst?”

“Munger says he doesn’t care about being rich. What he really cares about is having independence. I fully endorse that. What the money gives you is the ability to do what you want to do in the way you want to do it. . . . And that’s a tremendous benefit.”

“Compounding is a very simple idea. Cloning is a very simple idea. Telling the truth is a very simple idea,” he says. But when you apply a handful of powerful ideas with obsessive fervor, the cumulative effect “becomes unbeatable.”

Rule 1: Clone like crazy. Rule 2: Hang out with people who are better than you. Rule 3: Treat life as a game, not as a survival contest or a battle to the death. Rule 4: Be in alignment with who you are; don’t do what you don’t want to do or what’s not right for you. Rule 5: Live by an inner scorecard; don’t worry about what others think of you; don’t be defined by external validation. Finally, quoting a line of Munger’s that Pabrai often cites, I wrote, “Take a simple idea and take it seriously.”

Soros, and Warren Buffett shared one invaluable characteristic: “the willingness to be lonely, the willingness to take a position that others don’t think is too bright. They have an inner conviction that a lot of people do not have.”

First of all, said Templeton, beware of emotion: “Most people get led astray by emotions in investing. They get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.”

Second, said Templeton, beware of your own ignorance, which is “probably an even bigger problem than emotion. . . . So many people buy something with the tiniest amount of information. They don’t really understand what it is that they’re buying.”

Third, said Templeton, you should diversify broadly to protect yourself from your own fallibility.

“Don’t put all your money with any one expert. Don’t put all your money in any one industry or any one nation. Nobody is that smart. So the wise thing is to diversify.” Templeton recommended that the average investor should own a minimum of five mutual funds, each focused on a different area of the financial markets.

Fourth, said Templeton, successful investing requires patience.

Templeton’s affection for math reinforced his conviction that patience pays. To illustrate this, he mentioned the tale of Dutch immigrants buying Manhattan for $24 in 1626.* If the Native American sellers had invested this derisory sum at 8 percent a year, he said, they would have “enormously more than the total value of Manhattan today, including all the buildings.”

Fifth, said Templeton, the best way to find bargains is to study whichever assets have performed most dismally in the past five years, then to assess whether the cause of those woes is temporary or permanent.

Sixth, said Templeton, “One of the most important things as an investor is not to chase fads.”

As I see it now, Templeton didn’t just master the markets. He mastered himself. He took responsibility for every aspect of his life, including his time, money, health, thoughts, and emotions. This required extraordinary self-discipline. We don’t often celebrate self-discipline. It’s such an old-fashioned and fusty virtue. But Templeton triumphed by taking self-discipline to an extreme. As Pabrai learned from Munger, “Take a simple idea and take it seriously.”

It was in a class on Japanese Buddhism that he encountered the Zen concept of mujo, or impermanence.* Sitting in his corner office on the thirty-fourth floor of a skyscraper in midtown Manhattan, Marks explains how this ancient idea has shaped his philosophy of investing and life. “Change is inevitable. The only constant is impermanence,” he says. “We have to accommodate to the fact that the environment changes. . . . We cannot expect to control our environment. We have to accommodate to our environment. We have to expect and go with change.”

Any asset, however ugly, can be worth buying if the price is low enough. Indeed, Marks believes that “buying cheap” is the single most reliable route to investment riches—and that overpaying is the greatest risk. Thus, the essential question to ask about any potential investment should be “Is it cheap?”

“Look, luck is not enough,” he says. “But equally, intelligence is not enough, hard work is not enough, and even perseverance is not necessarily enough. You need some combination of all four. We all know people who were intelligent and worked hard but didn’t get lucky. It breaks my heart.

economist John Kenneth Galbraith, an intellectual hero of his, who said, “We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know.”

Recognizing that we can’t forecast the future might sound like a disheartening admission of weakness. In reality, it’s a tremendous advantage to acknowledge our limitations and operate within the boundaries of what’s possible. Out of weakness comes strength.

Any investor who hopes to achieve enduring success should internalize this fundamental idea of buying assets below their value. As we’ve seen, this is a common thread that unites everyone from Buffett to Pabrai, Templeton to Marks.

“But if the market is precarious, you don’t have to know what the catalyst will be,” says Marks. “You only have to know that there’s a vulnerability.”

The future had seldom seemed more unknowable or less inviting. Yet the investment risks had actually diminished. As Marks saw it, “The odds switched from precarious to propitious” for the simple reason that “things got cheap enough.”

Marks has a rare gift for identifying cyclical patterns that have occurred again and again in financial markets. Once we understand these patterns, we can avoid being blindsided by them and can even profit from them. “It’s very helpful,” Marks tells me, “to view the world as behaving cyclically and oscillating, rather than going in some straight line.” He believes that almost everything is cyclical. For example, the economy expands and contracts; consumer spending waxes and wanes; corporate profitability rises and falls; the availability of credit eases and tightens; asset valuations soar and sink. Instead of continuing unabated in one direction, all of these phenomena eventually reverse course. He compares these patterns to the swinging of a pendulum from one extreme to the other.

The financial markets are the perfect laboratory for the study of cyclicality because they’re driven by investor psychology, which veers perennially between euphoria and despondency, greed and fear, credulousness and skepticism, complacency and terror. Humans get carried away, so the trend always overshoots in one direction or the other. But Marks operates on the assumption that the cycle will eventually self-correct and the pendulum will swing back in the opposite direction. The future may be unpredictable, but this recurring process of boom and bust is remarkably predictable. Once we recognize this underlying pattern, we’re no longer flying blind.

The problem is, most investors act as if the latest market trend will continue indefinitely. Behavioral economists use the term recency bias to describe the cognitive glitch that leads us to overweight the importance of our recent experiences. Marks notes that the human mind also has a treacherous tendency to suppress painful memories. If this weren’t the case, I’m guessing that my wife wouldn’t have been willing to endure more than one pregnancy, and I’m not sure how many writers could muster the strength to keep returning to the blank screen. In our financial lives, this life-...

One way to combat this costly tendency to forget is through intensive study of market history. “You can’t know the future,” says Marks, but “it helps to know the past.” He pulls from a bookshelf his inscribed copy of Galbraith’s book A Short History of Financial Euphoria and reads me his single favorite piece of financial writing, which explores the causes of market euphoria: “The first [cause] is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances arise again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.” Watching the meteoric rise in the price of Bitcoin in 2017, Marks wondered if this was just the latest in a...

Marks, too, never lets down his guard. Most investors grow complacent when times are good. If anything, his vigilance intensifies because he knows that everything changes, that the pendulum will not stop at one end of its arc, that “cycles eventually prevail.” As Marks explains, the risk is highest when risk tolerance is most extreme—a paradox that he calls “the perversity of risk.”

To arrive at a conclusion, he asks himself questions such as Are investors appropriately skeptical and risk averse or are they ignoring risks and happily paying up? Are valuations reasonable relative to historical standards? Are deal structures fair to investors? Is there too much faith in the future?

The benefit of recognizing where we stand in the cycle is that it enables him to chart an appropriate course based on prevailing conditions, much as he’d drive more carefully on an icy road at night than on a sunny afternoon. “We have to recognize the market for what it is, accept it, and act accordingly,” says Marks.

“Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.” Thus Howard Marks, the eternal worrier, became virtually the only optimist on Wall Street.

As Buddhism teaches, we need to acknowledge the transience of all worldly phenomena so we won’t be surprised or dismayed when change occurs. Shunryu Suzuki said, “If we cannot accept this teaching that everything changes, we cannot be in composure.”

There’s a Buddhist quality to this habit of seeing reality as it is, without aversion or self-delusion. One of the greatest texts of Buddhism is the Satipatthana Sutta, the Buddha’s discourse on mindfulness as a means to nirvana. He explains that the path to awakening requires us to become “ever mindful” of whatever presents itself to us—to observe with detachment as all things (including our thoughts, feelings, and sensory perceptions) arise and pass away. Freedom comes from “clearly knowing” that everything is ephemeral and training ourselves to stop grasping at what is inherently unstable. The Buddha repeats the same refrain thirteen times: “And one abides independent, not clinging to anything in the world.” This idea of nonattachment can sound cold or unnatural. But a recognition of impermanence has its benefits. For one, it’s not just the good stuff (our youthful beauty, our loved ones, economic booms, and bull markets) that will fade away. The bad stuff (emotional and physical pain, lousy political leaders, recessions, and pandemics) will also pass. Given that everything changes, we shouldn’t get too carried away when times are good or too despondent when they’re bad. A sense of impermanence can also inspire us to value and nurture our relationships (since we don’t know how long any of us will be here) and to live more fully now. In his book The Science of Enlightenment, Shinzen Young writes of learning to experience the world with “radical fullness” by focusing on e...

His new investment strategy was built on one all-important insight that he drew from The Intelligent Investor. “Because the future is uncertain, you want to minimize your risk,” says Eveillard. Like most great truths, it is so simple that it’s easy to miss its significance, to gloss over its surface without internalizing its far-reaching implications.

MARGIN OF SAFETY.”* Graham explained that a margin of safety could be attained by buying stocks and bonds at a “favorable” discount to their “appraised value.” That gap between price and value would provide a cushion to absorb the impact of an investor’s own “miscalculations,” “worse than average luck,” and “the unknown conditions of the future.” It was a worldly-wise strategy, built on a recognition of human frailty and the hazards of history. We make mistakes. We have bad luck. The future is unknown.

How, then, can individuals reduce their vulnerability and bolster their resilience? Following Buffett’s lead, we should always keep enough cash in reserve so we’ll never be forced to sell stocks (or any other beleaguered asset) in a downturn. We should never borrow to excess because, as Eveillard warns, debt erodes our “staying power.” Like him, we should avoid the temptation to speculate on hot stocks with supposedly glorious growth prospects but no margin of safety. And we should bypass businesses with weak balance sheets or a looming need for external funding, which is liable to disappear in times of distress. None of this is brain surgery. But it requires us to take seriously that oft-forgotten commandment Thou shalt not depend on the kindness of strangers.

Kahn’s answer: “Investing is about preserving more than anything. That must be your first thought, not looking for large gains. If you achieve only reasonable returns and suffer minimal losses, you will become a wealthy man and will surpass any gambler friends you may have. This is also a good way to cure your sleeping problems.”

The future is so “intrinsically uncertain” that investors should focus heavily on avoiding permanent losses and building “a portfolio that can endure various states of the world.”

makes the point by quoting the Roman philosopher Seneca: “If one does not know to which port one is sailing, no wind is favorable.” For McLennan, the destination is clear: “Our goal is not to try to become rich quickly. It’s resilient wealth creation.”

“Gold has a negative correlation to stocks in really bad extreme states,” he says. It’s also “one of the scarcest and most resilient elements on the periodic table. . . . It doesn’t rust, it doesn’t rot, and it doesn’t fade like a business or a regime.” In a world of man-made instability, he argues (unfashionably) that gold adds “natural” resilience to his all-weather portfolio, helping to ensure that he can survive those unexpected dips. After all, companies may die, but gold endures.

“It’s a classic example of the fact that you need to buy the umbrella before it rains,” says McLennan. “By the time you’re hunting around for an umbrella in the middle of a storm, it’s pretty difficult to find one. So having the right mindset in advance was critical here.” While others panicked, he was also able to invest in battered stocks “at prices that were now much more sane.” He observes, “It’s not enough just to be conservative. You need to be willing to put cash to work when others feel least comfortable doing it.”

They “rent” stocks, instead of owning them for years. They succumb to the egotistical delusion that they can predict the future, instead of recognizing the limits of their knowledge. And they leap blindly into manias, their judgment fogged by “return envy” and the fear of missing out.