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

by William Green

The paradox is that Eveillard and McLennan hit the ball out of the park without ever swinging for the fences. McLennan attributes their success to a consistent focus on “risk mitigation,” “error elimination,” and “prudent acts of omission.” In essence, “it’s winning by not losing.”

McLennan knows that the future will bring more trouble, more instability, more decay. After all, “entropy is the ironclad rule of the universe.” But he thinks of himself as an “informed realist,” not a pessimist. “I’m a believer in human potential, but I think the path is not linear,” he says. “It’s punctured by episodic disruption. So, if you structure your portfolio and your way of thinking to endure those pockets of disruption, you’re more likely to be able to benefit from the march of humankind over time than if you depend on it going well.”

Five Rules for Resilience

Fifth, as informed realists, we should be keenly aware of our exposure to risk and should always require a margin of safety. But there’s an important caveat. We cannot allow our awareness of risk to make us fearful, pessimistic, or paranoid. Nietzsche warned, “Stare too long into the abyss and you become the abyss.” As McLennan demonstrated during the pandemic, the resilient investor has the strength, confidence, and faith in the future to seize opportunities when unresilient investors are reeling. Defense suddenly turns into offense. Disruption brings profit.

Writing to his shareholders in 1977, he laid out his four criteria for selecting any stock: “We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.” These may not strike you as earth-shattering secrets. But it’s hard to beat this distillation of eternal truths about what makes a stock desirable. More than forty years have passed, yet Buffett’s four filters remain as relevant and useful as ever.

But he managed to sum up his entire investment philosophy in three words: “Stocks follow earnings.”

In their own ways, Greenblatt, Buffett, Bogle, Danoff, and Miller have all been seekers of simplicity. The rest of us should follow suit. We each need a simple and consistent investment strategy that works well over time—one that we understand and believe in strongly enough that we’ll adhere to it faithfully through good times and bad.

Greenblatt. “How can you invest intelligently if you can’t figure out what something is worth?”* He adds that “most people should just index” because “they don’t understand what they’re doing.” I don’t have the technical skills, patience, or interest to value businesses. So it makes sense for me to outsource the job to professionals who are better equipped for the task. This self-restraint should save me a lot of pain. As Greenblatt observes in The Little Book That Beats the Market, “Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

It’s particularly hard to keep the faith when you’re losing money or have lagged the market for several years. You start to wonder if your strategy still works or if something has fundamentally changed. But the truth is, no strategy works all of the time. So these periods of financial and psychic suffering are an unavoidable part of the game. Inevitably, weaker players fall by the wayside, creating more opportunity for those with the sturdiest principles and the strongest temperaments. As Greenblatt puts it, “One of the beauties of the pain that people have to take in underperformance is that, if it did not exist, everyone would do what we do.”

Four Simple Lessons When I think about everything that I’ve learned from Greenblatt, I’m struck above all by four simple lessons. First, you don’t need the optimal strategy. You need a sensible strategy that’s good enough to achieve your financial goals. As the Prussian military strategist General Carl von Clausewitz said, “The greatest enemy of a good plan is the dream of a perfect plan.” Second, your strategy should be so simple and logical that you understand it, believe in it to your core, and can stick with it even in the difficult times when it no longer seems to work. The strategy must also suit your tolerance for pain, volatility, and loss. It helps to write down the strategy, the principles upon which it stands, and why you expect it to work over time. Think of this as a policy statement or a financial code of conduct. In times of stress and confusion, you can review this document to restore your equilibrium and regain your sense of direction. Third, you need to ask yourself whether you truly have the skills and temperament to beat the market. Greenblatt possesses an unusual combination of characteristics that give him a significant edge. He has the analytical brilliance to deconstruct a complex game, breaking it down into the most fundamental principles: value a business, buy it at a discount, then wait. He knows how to value businesses. He isn’t influenced by conventional opinion or authority figures such as the Wharton professors who claimed that the market is ...

Dr. Dean Ornish, the father of lifestyle medicine, who synthesized in eight syllables everything that he’s learned from his four decades of trailblazing research on health and nutrition: “Eat well, move more, stress less, love more.”

As he sees it, the “short-term crowd” responds constantly to “false stimuli,” whether it’s the latest economic data point or the trivial news that a company has beaten analysts’ expectations. “You need to be wired not to believe the bullshit, to not be listening.” One practical way of extricating themselves from this muck was to discard all of the sell-side research excreted by Wall Street. “We put it in a pile,” says Zakaria.

My costliest mistakes have come whenever I grew impatient or envious of other people’s returns and strayed off course by gambling on private companies or individual stocks that held the promise of a racier route to riches. The paradox here is that the slower road almost always proves to be faster in the end.

Howard Marks once told me, “Our performance doesn’t come from what we buy or sell. It comes from what we hold. So the main activity is holding, not buying and selling.

“I call myself a farmer,” says Russo. “Wall Street is flooded with hunters—people who try to go out and find the big game. They fell it and bring it back, and there’s a huge feast and everything is fabulous, and then they look for the next big game. I plant seeds and then I spend all of my time cultivating them.” His biggest holdings include Berkshire Hathaway, Brown-Forman, and Nestlé, all of which he’s owned since the 1980s. A few years ago, when he was fifty-nine, I asked Russo if he expected to own Berkshire and Nestlé for the rest of his life. He replied without hesitation, “I would think so.”

It makes no small difference, then, whether we form habits of one kind or of another from our very youth; it makes a very great difference, or rather all the difference. —Aristotle I think that people underestimate—until they get older—they underestimate just how important habits are, and how difficult they are to change when you’re forty-five or fifty, and how important it is that you form the right ones when you’re young. —Warren Buffett

First, he seeks “profitable businesses with good returns on capital and not too much leverage.” Second, the management team must have “equal measures of talent and integrity.” Third, the company should have ample opportunity to reinvest its profits at handsome rates of return. Fourth, the stock must be available to him at a “reasonable” price.

“Make your mistakes nonfatal,” Gundlach tells me. “It’s so fundamental to longevity. And ultimately, that’s what success is in this business: longevity.” Gayner’s portfolio is built to last. It would have been much more lucrative if he’d loaded up on Amazon, Google, and Facebook. But his investment decisions—much like his approach to food and exercise—are not intended to be optimal. Rather, he’s attempting to be consistently and sustainably sensible. The cumulative effect of operating this way over three decades has been extraordinary because he has harnessed the power of long-term compounding without ever galloping “at such a pace” that he would heighten “the odds of some catastrophic falloff.”

Aristotle, the ancient Greek philosopher, argued some twenty-four hundred years ago that excellence and lasting happiness depend on our ability to seek out the “golden mean”—an “intermediate” position that is “equidistant from each of the extremes.” When it comes to physical pleasures such as food, wine, and sex, he taught that we should stake out a middle ground between overindulgence and abstinence. Similarly, in the face of risk, he recommended steering a judicious course between the opposing extremes of timidity and recklessness: “For the man who flies from and fears everything and does not stand his ground against anything becomes a coward, and the man who fears nothing at all but goes to meet every danger becomes rash.”*

Gayner is highly intelligent. But his real advantage is behavioral, not intellectual. Comparing himself to some of his cleverest peers, he remarks, “I compensate for the lack of intellect with more discipline and steadiness and persistence.”

Brailsford, who has an MBA, was inspired by the Japanese principle of kaizen (continuous improvement), which had played a starring role in vaulting Toyota to greatness. Speaking with Eben Harrell at the Harvard Business Review, Brailsford explained, “It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression, and compound the improvements.”

Thousands of years earlier, the Taoist philosopher Lao-tzu wrote that the path to wisdom involves “subtracting” all unnecessary activities: “To attain knowledge, add things every day. To attain wisdom, subtract things every day.” The art of subtraction is incalculably important, particularly in an age of information overload when our minds can so easily become scattered. If you expose yourself to it, there’s a deafening din of discordant political news, social media notifications, robocalls, and other disruptive noise. In

he’s discovered one well-stocked pond, and he’s content to fish there for the rest of his days. Or, as Akre puts it, “We can’t dance with all the ladies.”

“My father was the richest person I’ve ever known,” says Gayner. “And it’s not because he had more money than Jeff Bezos or Warren Buffett. But he had enough. That’s a psychological statement.”

Don’t Be a Fool How to invest better, think better, and live better by adopting Charlie Munger’s strategy of systematically reducing standard stupidities

Munger adopts one practice that all of us would be wise to clone: He strives consistently to reduce his capacity for “foolish thinking,” “idiotic behavior,” “unoriginal error,” and “standard stupidities.”

I don’t have any wonderful insights that other people don’t have. I just have slightly more consistently than others avoided idiocy. Other people are trying to be smart. All I’m trying to be is non-idiotic. I find that all you have to do to get ahead in life is to be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.”

“What We Don’t Do.” For example, “Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be,” sticking instead “with businesses whose profit picture for decades to come seems reasonably predictable.” Berkshire also holds vast quantities of cash, negating any need to be a “supplicant” in times of economic distress. Buffett also joked that “this inversion approach works on a less lofty level: Sing a country song in reverse, and you will quickly recover your car, house and wife.”

nothing is more critical than “staying away from your ignorance.”

Munger describes himself as a collector of “absurdities,” “asininities,” and “inanities.”

His “golden rule for risk management” is simple: “Know what you own.”

There are “two sources of return for a stock,” he says. “One is the growth in intrinsic value. The other is the truing up” between the stock price and the “real value” of the underlying business. He has no idea when that truing up will occur. But his average holding period is a decade.

As Martin learned in the navy, “adherence to process” is an indispensable safeguard: “Always honor it because that’s going to keep you out of trouble.”* This idea of adopting a few standard practices and unbendable rules is our fourth technique for reducing stupidity. Buffett and Munger may not need formal constraints to maintain their discipline. But you and I are not them. Martin has another rule that he observes “religiously” as a protection against calamity. He never invests more than 3 percent of his assets in a stock at the time of purchase. Typically, he owns forty-five to fifty stocks. Is that too conservative? Absolutely. But it hasn’t prevented him from beating the indexes by a wide margin over decades, and it has prevented no end of misery.

One of the thorniest problems we face as investors is that the human brain is ill-equipped to make rational decisions. Our judgment is frequently torpedoed by emotions such as fear, greed, jealousy, and impatience; by prejudices that distort our perception of reality; by our susceptibility to serpentine sales pitches and peer pressure; and by our habit of acting on flawed or incomplete information.

Benjamin Franklin, who said, “If you would persuade, appeal to interest and not to reason.” Munger writes, “This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.” Incentives are pivotal in every area of life, whether it’s motivating employees or cajoling the most recalcitrant of adversaries: your children. Munger notes that the Soviet Union suffered from its Communist leaders’ “foolish and willful ignorance of the superpower of rewards,” which led them to disincentivize much productive work. He also warns about the “incentive-caused bias” of salespeople, which can lead “a pretty decent fellow” to drift “into immoral behavior in order to get what he wants.” As an antidote, Munger offers this tip: “Especially fear professional advice when it is especially good for the adviser.”

Shubin Stein warns that “you can’t immunize yourself effectively” against cognitive biases, no matter how smart or self-aware you are. The recognition that we are all subject to them is a start, but that knowledge doesn’t protect us against their unconscious influence on our thinking. Still, he offers several practical suggestions that can significantly enhance our ability to make rational decisions, despite the problematic tendencies ingrained in the human brain over millennia. For a start, Shubin Stein recommends taking the time to rewrite the list of common cognitive errors that Munger describes in his talk on the psychology of misjudgment. Instead of quoting Munger, it’s best to describe these pitfalls in your own words, so you can internalize his insights and make them your own. It’s also helpful to personalize Munger’s checklist by including investment mistakes you’ve made in the past and emphasizing the tendencies to which you’re especially vulnerable. “You need to learn how your own brain works, where you’re strong, and where your challenges lie,” explains Shubin Stein. For example, he’s highly susceptible to “authority bias,” which has sometimes led him to place too much faith in stocks owned by investment luminaries whom he admires. To help counter this bias, he added two questions to his cognitive checklist: “Have I done the work? And have I independently verified everything?”

Devil’s advocate reviews. Premortems. Conversations with a skeptical discussion partner. A cognitive checklist that reminds us of our biggest biases and our past mistakes. These are all disciplined analytical techniques that can help us systematically to slow down, open our minds, and consider risks that we might otherwise overlook.

Similarly, Shubin Stein taught his students to perform a “bull/bear analysis” for every company they analyzed—another basic procedure that entails writing two thesis statements (one positive, one negative), each on a single page of its own. The key is to use such techniques routinely, so we consistently challenge our assumptions, contemplate counterarguments, and resist the brain’s tendency to conserve energy by taking shortcuts. This emphasis on adopting systematic analytical procedures is the sixth strategy in our epic quest to be non-idiotic.

But for investors, herd behavior is often disastrous, driving them to buy during bubbles and sell during panics. As Munger once remarked, “Crowd folly, the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior.”

“There are four things that we know improve brain health and brain function,” says Shubin Stein. “Meditation, exercise, sleep, and nutrition.” Determined to use every tool at his disposal, he exercised strenuously, which also helped him to sleep better. He ate more fish, vegetables, and fruit. He renounced his “worst tendencies,” including a habit of handling stress by gorging on vanilla ice cream with mashed-up chocolate chip cookies. And he developed a regular meditation practice—a mission-critical habit for many successful investors. These “practices for sustained high performance” have “a compounding effect” when you use them consistently, says Shubin Stein. For example: “The reason you meditate is not because it’s important on a specific day. The regular practice of meditation will help you handle the hard setbacks and will keep you constantly prepared for them. . . . Having that practice in place prepares you well. It’s a lot like preventative medicine.” This is a critical nuance that I think most of us miss. The optimal time to adopt these healthy habits isn’t when we’re in the

When he’s stressed, upset, or overwhelmed, he tries to take a break, makes sure that he’s rested and well fed, and gives himself time to return to a “neutral” state that will “allow for more mindful decision-making.” Simple solutions such as clearing his schedule and sleeping on decisions for a night have also helped considerably. “The more intense things get, the less I do, both personally and professionally,” he says. “I try to slow things down. I try to simplify life. . . . I look at my calendar and withdraw from a lot of activities to make sure that I’m eating well, meditating, and have structured time to think and reflect.”

The same goes for envy, which he considers the dumbest of the seven deadly sins because it’s not even fun. He also disdains the tendency to view oneself as a victim, and he has no patience for whining. When I ask if he has a mental process that helps him to defuse self-defeating emotions, he replies, “I know that anger is stupid. I know that resentment is stupid. I know self-pity is stupid. So I don’t do them. . . . I’m trying not to be stupid every day, all day.”

Asked about the crash of 1973–74, when his investment partnership lost more than 50 percent, he notes that Berkshire’s stock price has also halved on three occasions: “If you’re going to be in this game for the long pull, which is the way to do it, you better be able to handle a fifty percent decline without fussing too much about it. And so my lesson to all of you is, conduct your life so that you can handle the fifty percent decline with aplomb and grace. Don’t try to avoid it. It will come. In fact, I would say if it doesn’t come, you’re not being aggressive enough.”

As John Milton wrote in Paradise Lost, which he dictated after going blind, “The mind is its own place, and in itself can make a heaven of Hell, a hell of Heaven.”

Now, with his career, his finances, his reputation, and his peace of mind under attack, he turned for “emotional stability” to Stoic philosophers such as Epictetus and Seneca, reminding himself of their “general approach to misfortune. Basically, you can’t control what happens to you,” says Miller. “You can control your attitude towards it. Whether it’s good, bad, indifferent, fair, unfair, you can choose the attitude you take to it.”

“By your own thoughts you make or mar your life, your world, your universe,” Allen preached. “As you build within by the power of thought, so will your outward life and circumstances shape themselves accordingly. . . . The soul that is impure, sordid, and selfish is gravitating with unerring precision toward misfortune and catastrophe; the soul that is pure, unselfish, and noble is gravitating with equal precision toward happiness and prosperity.”

“I’m the richest guy in the world because I’m content with what I have,” says Van Den Berg. “I feel wealthier not because I have more money but because I’ve got health, good friendships, I’ve got a great family. Prosperity takes all of these things into consideration: health, wealth, happiness, peace of mind. That’s what a prosperous person is, not just a lot of money. That doesn’t mean anything.”