Buffett, Munger & Graham: Collection Of Words, Quotes Or
Disciplines
November 17, 2014The world is infinite. Brian Lockier 2014March
27, 2012But these ground rules are the philosophy. If you are in
tune with me, then lets go. If you arent, I understand. Im not
going to tell you what we own or anything like that. I want to get
bouquets when I deserve bouquets, and I want to get soft fruit
thrown at me when I deserve it. But I dont want fruit thrown at me
if Im down 5 percent, and the markets down 15 percentIm going to
think I deserve a bouquet for that.Warren Buffettdiscussing taking
on new investors in his fund.August 17, 2011"I save about $5+ a day
in coupons. I bring a healthy lunch, nuts, fruits, for ~$2 per day,
saving ~$10. Equates to >$5K per year. Future value that."
Ronald R. Redfield August 2011June 8, 2011"Do the best that you can
do. Never tell a lie. If you say you are going to do it, get it
done. Nobody gives a shit about an excuse. By the way, those are
very useful rules, especially for those in a service business.
People are paying for your services with their own money. Return
your calls quickly. The other thing is the five-second no. You've
got to make up your mind. You don't leave people hanging." Charles
MungerMay 13, 2009"We may congratulate ourselves that this cruel
war is nearing its end. It has cost a vast amount of treasure and
blood. . . . It has indeed been a trying hour for the Republic; but
I see in the near future a crisis approaching that unnerves me and
causes me to tremble for the safety of my country. As a result of
the war, corporations have been enthroned and an era of corruption
in high places will follow, and the money power of the country will
endeavor to prolong its reign by working upon the prejudices of the
people until all wealth is aggregated in a few hands and the
Republic is destroyed. I feel at this moment more anxiety for the
safety of my country than ever before, even in the midst of war.
God grant that my suspicions may prove groundless." The passage
appears in a letter from Lincoln to (Col.) William F. Elkins, Nov.
21, 1864. (Note: There is a debate whether or not Lincoln wrote or
said this.)May 8, 2009"Value investing is like buying a snowboard
during July." Ronald R. Redfield April 2009Warren Buffett once
wrote that value investing is like an inoculation-it either takes
or it doesnt- and when you explain to somebody what it is and how
it works and why it works and show them the returns, either they
get it or they dont. -Seth Klarmanof the Baupost GroupApril 3,
2008"I tell people that buying a house is not the same as buying a
house on fire." James Dimon during a Government testimony,
explaining why JP Morgan offered $2 per share for Bear
Stearns.March 3, 2008"If they worry about what stocks will do in
any given day, they shouldn't be buying stocks." Warren Buffett
responding to question about stock futures being down on the
morning of 3/3/08 and how he interprets such.February 25,
2008"Charlie and I operated mostly with 5 positions. If I were
running 50, 100, 200 million, I would have 80% in 5 positions, with
25% for the largest. In 1964 I found a position I was willing to go
heavier into, up to 40%. I told investors they could pull their
money out. None did. The position was American Express
Company(NYSE:AXP) after the Salad Oil Scandal. In 1951 I put the
bulk of my net worth into GEICO. Later in 1998, LTCM was in
trouble. With the spread between the on-the-run versus off-the-run
30 year Treasury bonds, I would have been willing to put 75% of my
portfolio into it. There were various times I would have gone up to
75%, even in the past few years. If it's your game and you really
know your business, you can load up." Warren Buffett 2/15/08"Over
the past 50-60 years, Charlie and I have never permanently lost
more than 2% of our personal worth on a position. We've suffered
quotational loss, 50% movements. That's why you should never borrow
money. We don't want to get into situations where anyone can pull
the rug out from under our feet." Warren Buffett 2/15/08"In stocks,
it's the only place where when things go on sale, people get
unhappy. If I like a business, then it makes sense to buy more at
20 than at 30. If McDonald's reduces the price of hamburgers, I
think it's great." Warren Buffett 2/15/08October 25, 2007"Look to
your mentors, rather than eliminate them, when you have issues in
your life." Ronald R. Redfield cpa,pfs 10/07.October 16, 2007"What
you have to do in this environment of heavy research and abundance
of value players is to be able to analyze and capture the
appearance of value, within companies that are herd followed and
owned by value investors yet at the same time, when you dig deep,
these same companies do not carry typical value traits. Another way
of saying this would be to capitalize when value investors lose
sight of the ball, or get lazy. Ronald R. Redfield cpa,pfs
10/07.October 15, 2007 Einstein Words"Concern for making life
better for ordinary humans, must be the chief object of science,
never forget this when you are pondering over your diagrams and
equations.""I believe in Spinoza's god, who reveals himself in the
lawful harmony of all that exists. But not in a god who concerns
himself in the fate and the doings of mankind."In response to a
request of using a phrase that Einstein came up with, Einstein
allowed his phrase to be used, and sent this note as an explanation
as to what the phrase means, "Nature hides her secret because of
her essential loftiness, but not by means of ruse."During 2007,
Charles Munger recommended a book on Einstein, by Walter Isaacson.
I am in the middle of the book, and came across a very interesting
contract that Albert had devised with and was accepted by his first
wife (or was it his second, I can not recall. I am not familiar
with his further life, as I am still on this chapter of a
fascinating book I thought I would share this section, and see if
it gives us any insight as to the thought process and personal
views of Charlie. I enjoyed Isaacson's book on Ben Franklin as
well."Einstein's contract with his wife.""Cold scientific approach
combined with personal hostility and emotional alienation to
produce an astonishing document.Conditions:A. You will make sure:1.
that my clothes and laundry are kept in good order.2. that I will
receive my three meals regularly, in my room.3. that my bedroom and
study are kept neat, and especially that my desk is left for my use
only.B. You will renounce all personal relations with me, in so far
as they are not completely necessary for social reasons,
specifically you will forego:1. my sitting at home with you.2. my
going out or travelling with you.C. You will obey the following
points in your relations with me:1. You will not expect any
intimacy from me, nor will you approach me in any way.2. You will
stop talking to me if I request it.3. You will leave my bedroom or
study immediately without protest if I request it.D. You will
undertake not to belittle me in front of our children, either in
words or behavior."June 27, 2007"Value Investors must be
over-weighted in patience." Seth Klarman"Investing isn't simply
about being sure you are right, but about making sure you are
protected if you are wrong." Jason Zweig"Don't be an extreme
ideologue. To be happy in marriage, improve yourself as a spouse"
Charlie Munger Wesco 2007 AM" Accounting. A noble profession, yet
it gave us Enron." Charlie Munger Wesco 2007 AM"It's fun to be
rational.It's fun to be trusted.More compliance is not the
answer.Aspire to be a seamless well of deserved trust." Charlie
Munger Wesco 2007 AMJanuary 2, 2007"If you can do more, you
should." - Robert RedfordJuly 5, 2005 Interesting Poem on Stock
Option expensingI read an article called "Stock Options and the
Lying Liars Who Don't want to Expense Them", written by Clifford S.
Asness. He had a paragraph that I just loved. Here it is in my own
formation."Issued Options are an Expense"" They are an expense in a
house.They are an expense to a mouse.They are not an expense only
to a louse"(for the record, I totally believe in expensing options.
I am amazed how many companies do not pay corporate income taxes
because of stock option compensation. Many of these companies are
thought to be making a ton of money, yet they have net operating
loss carry forwards for tax purposes. These companies include eBay
Inc(NASDAQ:EBAY), Cisco Systems, Inc.(NASDAQ:CSCO) and Qualcomm,
Inc.(NASDAQ:QCOM). It is amazing how many of the analysts and
investors in these companies, are not aware of the Net Operating
Loss Carry-forwards)February 22, 2005Various quotes from Warren
Buffett"We do not have, never have had, and never will have an
opinion about where the stock market, interest rates or business
activity will be a year from now." 1987" I think I am under-taxed,
but I do not send along any voluntary payments." (annual meeting
1998)"The public school teacher is probably the most
under-compensated and under-appreciated person in the public
arena."February 22, 2005" We always run scared" (Marty Whitman on
investing)January 10, 2005"The national budget must be balanced.
The public debt must be reduced; the arrogance of the authorities
must be moderated and controlled. Payments to foreign governments
must be reduced, if Rome doesn't want to become bankrupt. People
must again learn to work, instead of living on public assistance."
Cicero 63BC" I place economy among the first and important virtues,
and public debt as the greatest of dangers. To preserve our
independence, we must not let our rulers load us with perpetual
debt. We must make our choice between economy and liberty, or
profusion and servitude. If we can prevent the government from
wasting the labours of the people under the pretense of caring for
them, they will be happy." Thomas Jefferson" And to preserve their
independence, we must not let our rulers load us with perpetual
debt. We must make our election between economy and liberty, or
profusion and servitude." Thomas JeffersonPrior to December 31,
2004" Every great crisis reveals the excessive speculations of many
houses which no one before suspected, and which commonly indeed had
not begun or had not carried very far those speculations, till they
were tempted by the daily rise of price and the surrounding fever."
~ Bagehot, Walter (1826-1877)"Nothing is as dangerous as an
ignorant friend; a wise enemy is to be preferred. "Jean de La
Fontaine" Man is a gregarious animal, and much more so in his mind
than in his body. He may like to go alone for a walk, but he hates
to stand alone in his opinions." ~George Santayana"Read, every day,
something no one else is reading. Think, every day, something no
one else is thinking. Do, every day, something no one else would be
silly enough to do. It is bad for the mind to be always part of
unanimity.-- Christopher Morley" If something is unsustainable,
then it will stop.'' It acknowledges the size of the
current-account deficit (big) yet minimizes the danger of an
adjustment (benign, according to Federal Reserve Chairman Alan
Greenspan)."Author: Herbert Stein" A person who is a master in the
art of living makes little distinction between their work and their
play, their labor and their leisure, their mind and their body,
their education and their recreation, their love and their
religion. They hardly know which is which and simply peruse their
vision of excellence and grace, whatever they do, leaving others to
decide whether they are working or playing. To them they are always
doing both. "Author: " A Zen Poet ""Doubt - The only human activity
capable of controlling the use of power in a positive way. Doubt is
central to understanding."Author - UnknownExcellent site for quotes
of Mark Twain"The tough years for us were '98 and '99, when we were
only making a little bit of money, and everybody else out there was
making tons of money for their clients. It got easier as the market
started to come down and our stocks were going up. The cheap stocks
went up; expensive stocks went down. That convergence was great for
value investors, including the Oakmark family, from 2000 through
about mid-2003. "- Bill Nygren, July 2004Fund manager of Oakmark
which has achieved a 20% average annual rate of return since
1996."I talk with some aggressive growth managers I know. I asked
them when this thing (the tech meltdown) was blowing off, why
didn't you get out of that crap. They said, 'Then we'd underperform
relative to the market.' And if you underperform, I assume you'll
get redeemed (in that shareholders redeem, or sell, their fund
shares) right? They say, 'Right.' So let me get this straight: You
own this crap, you get destroyed and you get redeemed anyway."- Bob
Rodriguez, April 2004Fund manager of FPA Capital Fund which has
achieved a 20-year annual return of 17.6%"Never count on making a
good sale. Have the purchase price be so attractive that even a
mediocre sale gives good results."- Warren Buffett, 1974 Letter to
Shareholders"Despite three years of falling prices, which have
significantly improved the attractiveness of common stocks, we
still find very few that even mildly interest us. That dismal fact
is testimony to the insanity of valuations reached during The Great
Bubble. Unfortunately, the hangover may prove to be proportional to
the binge."- Warren Buffett, March 2003"From where did this loony
idea emerge that a cowlicked midwesterner who buys stock in
companies that turn out syrupy fizz water, bland ice milk and lefty
newspapers should thus be known as a Value Investor?...Tech will
roar back. It will continue its merry dash toward infinite powers
at zero cost. It will transform all in its path. Markets may (and
just did) correct for overvalue, but they can't abjure the laws of
physics... Bottom line: In such an explosive economy, there will be
no safe harbors for traditional 'value' stocks."- Richard
Karlgaard, Publisher of Forbes Magazine in May 2000 just before the
tech bubble burst"I like to go for cinches. I like to shoot fish in
a barrel. But I like to do it after the water has run out."- Warren
Buffett, Oct. 2003 talking with Wharton MBA students"The important
thing is to keep playing, to play against weak opponents and to
play for big stakes."- Warren Buffett, Nov. 2002 talking with
students at Gaston Hall"Sometimes you're outside your core
competency. Level 3 is one of those times but I've made a bet on
the people and I feel I understand the people. There was a time
when people made a bet on me."- Warren Buffett, Oct. 2002 when
questioned about his investment in Level 3"The definition of hell
in the legal system is: endless due process and no justice; (in the
corporate world) it would be: endless due diligence and no horse
sense."- Charlie Munger, 2002 Berkshire Hathaway Inc.(NYSE:BRK.A)
(NYSE:BRK.B) Shareholder Meeting"This time Congress should listen
to the slim accountants. The logic behind their thinking is
simple:"1) If options aren't a form of compensation, what are
they?"2) If compensation isn't an expense, what is it?"3) And if
expenses shouldn't go into the calculation of earnings, where in
the world should they go?"- Warren Buffett"We don't use
price-to-earnings multiples anymore at Cramer Berkowitz. If we talk
about price-to-book, we have already gone astray. If we use any of
what Graham and Dodd teach us, we wouldn't have a dime under
management."- James Cramer at the height of the dot com frenzy"The
only way to be loved is to be loveable, which really irritates
me."- Warren Buffett, speaking at the CityClub in Seattle (July 21,
2001)"We've had public companies in the past in that business and
they bleed. We've got a lot more blood than they do."- Warren
Buffett talking about Executive Jet in a rare show of teeth at the
Berkshire Hathaway annual meeting"First, many in Wall Street - a
community in which quality control is not prized - will sell
investors anything they will buy."- Warren Buffett, 2000 Letter to
Shareholders"The whole concept of dividing it up into 'value' and
'growth' strikes me as twaddle. It's convenient for a bunch of
pension fund consultants to get fees prattling about and a way for
one advisor to distinguish himself from another. But, to me, all
intelligent investing is value investing."- Charlie Munger"When
they open that envelope, the first instruction is to take my pulse
again."- Warren Buffett, 2001 Annual Meeting after mentioning that
the instructions of his succession are sealed in an envelope at
headquarters."Charlie and I decided long ago that in an investment
lifetime it's too hard to make hundreds of smart decisions. That
judgment became ever more compelling as Berkshire's capital
mushroomed and the universe of investments that could significantly
affect our results shrank dramatically. Therefore, we adopted a
strategy that required our being smart - and not too smart at that
- only a very few times. Indeed, we'll now settle for one good idea
a year. (Charlie says it's my turn.)"- Warren Buffett"Somewhere in
the middle of the Bull market the first common-stock flotations
make their appearance. These are priced not unattractively, and
some large profits are made by the buyers of the early issues. As
the market rise continues, this brand of financing grows more
frequent; the quality of the companies becomes steadily poorer; the
prices asked and obtained verge on exorbitant. One fairly
dependable sign of the approaching end of a bull swing is the fact
that new common stocks of small and nondescript companies are
offered at prices somewhat higher than the current level for many
medium-sized companies with a long market history. The heedlessness
of the public and the willingness of the selling organization to
sell whatever may be profitably sold can have only one result -
price collapse."-Benjamin Graham"When companies start measuring
success by clicks that doesn't compute to us, the only thing that
computes to us is cash."-Bruce Berkowitz, Fairholme Funds"The
analysts and the brokers. They don't know anything. Why do they
always downgrade stocks after the bad earnings come out? Where's
the guy that downgrades them before the bad earnings come out?
That's the smart guy. But I don't know any of them. They're rare,
they're very rare. They're rarer than Jesse Jackson at a Klan
meeting."- Marc Perkins, 2000 TheStreet.com"Volatility is a symptom
that people have no idea of the underlying value--that they have
stopped playing the asset game. They're not buying because it's a
company with certain attributes. They're buying because the price
is rising. People are playing games not related to any concept at
all of what the long-term value of the enterprise is. And they know
it."- Jeremy Grantham, Grantham, Mayo, Van Otterloo & Co."The
fact that people will be full of greed, fear or folly is
predictable. The sequence is not predicatable."- Warren Buffett,
Financial Review, 1985"When you mix raisins with turds, they are
still turds."- Charlie Munger"All intelligent investing is value
investing - to acquire more than you are paying for. Investing is
where you find a few great companies and then sit on your ass.-
Charlie Munger at Berkshire Hathaway's 2000 Shareholder
Meeting"Opportunity does not knock, it presents itself when you
beat down the door."- Kyle Chandler"People who soar are those who
refuse to sit back, sigh and wish things would change."- Charles
Swindoll"REITs are way more suitable for individual shareholders
than for corporate shareholders. And Warren has enough residue from
his old cigar-butt personality that when people became disenchanted
with the REITs and the market price went down to maybe a 20%
discount from what the companies could be liquidated for, he bought
a few shares with his personal money. So it's nice that Warren has
a few private assets with which to pick up cigar butts in memory of
old times - if that's what keeps him amused."- Charlie Munger at
the 1999 Wesco Annual Meeting"The secret now is to be disciplined.
It's so easy to get carried away with things valued on the
hereafter."- Alan Patricof, founder of Patricof & Co."Those who
attended (the annual meeting) last year saw your Chairman pitch to
Ernie Banks."This encounter proved to be the titanic duel that the
sports world had long awaited. After the first few pitches...I
fired a brushback at Ernie just to let him know who was in command.
Ernie charged the mound, and I charged the plate. But a clash was
avoided because we became exhausted before reaching each other."-
Warren Buffett, 1999 Letter to Shareholders"We're more comfortable
in that kind of business. It means we miss a lot of very big
winners. But we wouldn't know how to pick them out anyway. It also
means we have very few big losers - and that's quite helpful over
time. We're perfectly willing to trade away a big payoff for a
certain payoff."- Warren Buffett, 1999 Berkshire Hathaway Annual
Meeting"When it comes to the future, there are three kinds of
people: those who make it happen, those who let it happen, and
those who wonder what happened."- John M. Richardson, Jr."I am out
of step with present conditions. When the game is no longer played
your way, it is only human to say the new approach is all wrong,
bound to lead to trouble, and so on. On one point, however, I am
clear. I will not abandon a previous approach whose logic I
understand ( although I find it difficult to apply ) even though it
may mean foregoing large, and apparently easy, profits to embrace
an approach which I don't fully understand, have not practiced
successfully, and which possibly could lead to substantial
permanent loss of capital."- Warren Buffett in a letter to his
partners in the stock market frenzy of 1969."A conventional
valuation which is established as the outcome of the mass
psychology of a large number of ignorant individuals is liable to
change violently as the result of a sudden fluctuation of opinion
due to factors which do not really make much difference to the
prospective yield; since there will be no strong roots of
conviction to hold it steady."- John Maynard Keynes, 1935 The State
of Long-Term Expectation"We've long felt that the only value of
stock forecasters is to make fortune tellers look good. Even now,
Charlie and I continue to believe that short-term market forecasts
are poison and should be kept locked up in a safe place, away from
children and also from grown-ups who behave in the market like
children."- Warren Buffett"I just don't see anything available that
gives any reasonable hope of delivering such a good year and I have
no desire to grope around, hoping to 'get lucky' with other
people's money. I am not attuned to this market environment, and I
don't want to spoil a decent record by trying to play a game I
don't understand just so I can go out a hero."- Warren Buffett"It
always seemed, and still seems, ridiculously simple to say that if
one can acquire a diversified group of common stocks at a price
less than the applicable net current assets alone - after deducting
all prior claims, and counting as zero the fixed and other assets -
the results should be quite satisfactory."- Benjamin Graham,The
Intelligent Investor"The key to investing is not assessing how much
an industry is going to affect society, or how much it will grow,
but rather determining the competitive advantage of any given
company and, above all, the durability of that advantage."- Warren
Buffett, July 1999 at Herb Allen's Sun Valley, Idaho Retreat"The
most common cause of low prices is pessimism-some times pervasive,
some times specific to a company or industry. We want to do
business in such an environment, not because we like pessimism but
because we like the prices it produces. It's optimism that is the
enemy of the rational buyer."- Warren Buffett, 1990 Chairman's
Letter to Shareholders"I don't read economic forecasts. I don't
read the funny papers."- Warren Buffett"There was nothing wrong
with these ideas, except that it was almost impossible not to carry
them too far. With encouragement from the past and a rosy prospect
in the future, the buyers of 'growth stocks' were certain to lose
their sense of proportion and pay excess prices. For no clear-cut
arithmetic sets a limit to the present value of a constantly
increasing earning power. Such issues could become worth any value
set upon them by an optimistic market."- Benjamin Graham"We have
been trying to point out that this concept of an indefinitely
favorable future is dangerous, even if it is true; because even if
it is true you can easily overvalue the security, since you make it
worth anything you want it to be worth. Beyond this, it is
particularly dangerous too, because sometimes your ideas of the
future turn out to be wrong. Then you have paid an awful lot for a
future that isn't there. Your position then is pretty bad."-
Benjamin Graham"Set your expectations high; find men and women
whose integrity and values you respect; get their agreement on a
course of action; and give them your ultimate trust."- John
Akers"Yes, risk-taking is inherently failure-prone. Otherwise, it
would be called sure-thing taking."- Tim McMahon"Pick battles big
enough to matter, small enough to win."- Jonathan Kozol"The stock
market is a no-called-strike game. 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!'"-
Warren Buffett1999 Berkshire Hathaway Annual Meeting"Success in
investing doesn't correlate with I.Q. once you're above the level
of 25. Once you have ordinary intelligence, what you need is the
temperament to control the urges that get other people into trouble
in investing."- Warren BuffettBusinessWeek InterviewJune 25
1999"Based on my own personal experience - both as an investor in
recent years and an expert witness in years past - rarely do more
than three or four variables really count. Everything else is
noise."- Marty Whitman"Not everything that can be counted counts,
and not everything that counts can be counted."- Albert Einstein
(1879-1955)"I was suffering from my chronic delusion that one good
share is safer than ten bad ones, and I am always forgetting that
hardly anyone else shares this particular delusion."- John Maynard
Keynes, 1942contributed by Paul Nelson"Our future rates of gain
will fall far short of those achieved in the past. Berkshire's
capital base is now simply too large to allow us to earn truly
outsized returns. If you believe otherwise, you should consider a
career in sales but avoid one in mathematics (bearing in mind that
there are really only three kinds of people in the world: those who
can count and those who can't). "- Warren Buffett, 1998 Chairman's
Letter to Shareholders"There are all kinds of businesses that
Charlie and I don't understand, but that doesn't cause us to stay
up at night. It just means we go on to the next one, and that's
what the individual investor should do."- Warren Buffett,
Morningstar, Inc.(NASDAQ:MORN) Interview"Many are looking for
technical corrective reactions from time to time, but do not expect
these to disturb the upward trend for any prolonged period."- Wall
Street JournalSeptember 9, 1929(months before the worst disaster in
financial history)"Investors making purchases in an overheated
market need to recognize that it may often take an extended period
for the value of even an outstanding company to catch up with the
price they paid."- Warren BuffettBerkshire Hathaway 1998 Annual
Meeting"We don't get paid for activity, just for being right. As to
how long we'll wait, we'll wait indefinitely."- Warren Buffett,
1998 Berkshire Hathaway Annual Meeting"Thousands of experts study
overbought indicators, oversold indicators, head-and-shoulder
patterns, put-call ratios, the Fed's policy on money supply,
foreign investment, the movement of the constellations through the
heavens, and the moss on oak trees, and they can't predict markets
with any useful consistency, any more than the gizzard squeezers
could tell the Roman emperors when the Huns would attack."-Peter
Lynch,One Up On Wall Street"There are 60,000 economists in the
U.S., many of them employed full-time trying to forecast recessions
and interest rates, and if they could do it successfully twice in a
row, they'd all be millionaires by now...as far as I know, most of
them are still gainfully employed, which ought to tell us
something."- Peter Lynch, One Up On Wall Street"Time is the enemy
of the poor business and the friend of the great business. If you
have a business that's earning 20%-25% on equity, time is your
friend. But time is your enemy if your money is in a low return
business."- Warren Buffett, 1998 Berkshire Annual Meeting"Well, the
questioner came from Singapore which has perhaps the best economic
record in the history of developing an economy and therefore he
referred to 15% per annum as modest. It's not modest--it's
arrogant. Only someone from Singapore would call it modest. "-
Charlie Munger, 1997 Berkshire Hathaway Annual Meeting"Ben's Mr.
Market allegory may seem out-of-date in today's investment world,
in which most professionals and academicians talk of efficient
markets, dynamic hedging and betas. Their interest in such matters
is understandable, since techniques shrouded in mystery clearly
have value to the purveyor of investment advice. After all, what
witch doctor has ever achieved fame and fortune by simply advising
'Take two aspirins'?"- Warren Buffett, 1987 Chairman's Letter to
Shareholders"We will reject interesting opportunities rather than
over-leverage our balance sheet."- Warren Buffett, Berkshire
Hathaway Owners Manual"We attracted a lot of market timers and
asset allocators. I don't need those goddamn amateurs in my fund."-
Martin Whitman, Morningstar Article"If you expect to be a net saver
during the next 5 years, should you hope for a higher or lower
stock market during that period?"Many investors get this one wrong.
Even though they are going to be net buyers of stocks for many
years to come, they are elated when stock prices rise and depressed
when they fall."This reaction makes no sense. Only those who will
be sellers of equities in the near future should be happy at seeing
stocks rise. Prospective purchasers should much prefer sinking
prices."- Warren Buffett, 1997 Chairman's Letter to Shareholders"In
the short run, the market is a voting machine but in the long run
it is a weighing machine."- Benjamin Graham"The strategy we've
adopted precludes our following standard diversification dogma.
Many pundits would therefore say the strategy must be riskier than
that employed by more conventional investors. We disagree. We
believe that a policy of portfolio concentration may well decrease
risk if it raises, as it should, both the intensity with which an
investor thinks about a business and the comfort-level he must feel
with its economic characteristics before buying into it."- Warren
Buffett, 1993 Chairman's Letter to Shareholders"An irrisistable
footnote: in 1971, pension fund managers invested a record 122% of
net funds available in equities - at full prices they couldn't buy
enough of them. In 1974, after the bottom had fallen out, they
committed a then record low of 21% to stocks."- Warren Buffett,
1978 Chairman's Letter to Shareholders"I will tell you how to
become rich. Close the doors. Be fearful when others are greedy. Be
greedy when others are fearful."- Warren Buffett lecturing to a
group of students at Columbia U. He was 21 years old.Buffett: Don't
you think Dairy Queen is more important than that? [Warren
Buffett's question to Bill Gates after Bill explained why he had
the best job; Berkshi re Hathaway bought International Dairy Queen
last fall, for $585 million.]Gates: You can manage Dairy Queen,
Warren. I'll go and buy the Dilly Bars.Buffett: We'll raise the
price when you come.- Warren Buffett and Bill Gates speaking to a
group of students at the University of Washington (1998)"Of the
2,692 diversified stock mutual funds tracked by Lipper Analytical
Services, only 134 have beaten the S&P 500 this year."- USA
Today; June 18, 1998"We have tried occasionally to buy toads at
bargain prices with results that have been chronicled in past
reports. Clearly our kisses fell flat. We have done well with a
couple of princes - but they were princes when purchased. At least
our kisses didn't turn them into toads. And, finally, we have
occasionally been quite successful in purchasing fractional
interests in easily-identifiable princes at toad-like prices."-
Warren Buffett, 1981 Chairman's Letters to Shareholders"When
returns on capital are ordinary, an earn-more-by-putting-up-more
record is no great managerial achievement. You can get the same
result personally while operating from your rocking chair. just
quadruple the capital you commit to a savings account and you will
quadruple your earnings. You would hardly expect hosannas for that
particular accomplishment. Yet, retirement announcements regularly
sing the praises of CEOs who have, say, quadrupled earnings of
their widget company during their reign - with no one examining
whether this gain was attributable simply to many years of retained
earnings and the workings of compound interest."- Warren Buffett,
1985 Chairman's Letter to Shareholders"If you understood a business
perfectly and the future of the business, you would need very
little in the way of a margin of safety. So, the more vulnerable
the business is, assuming you still want to invest in it, the
larger margin of safety you'd need. If you're driving a truck
across a bridge that says it holds 10,000 pounds and you've got a
9,800 pound vehicle, if the bridge is 6 inches above the crevice it
covers, you may feel okay, but if it's over the Grand Canyon, you
may feel you want a little larger margin of safety..."- Warren
Buffett, 1997 Berkshire Hathaway Annual Meeting"If you're an
investor, you're looking on what the asset is going to do, if
you're a speculator, you're commonly focusing on what the price of
the object is going to do, and that's not our game."- Warren
Buffett, 1997 Berkshire Hathaway Annual Meeting"I have owned one
stock since 1969, two since 1988 and one I started buying in 1986
or so. That's my portfolio. Six stocks. I once owned 17, but that
was way too much."-Philip Fisher, Forbes"The stock market is filled
with individuals who know the price of everything, but the value of
nothing."- Philip Fisher,Common Stocks Uncommon ProfitsBerkshire
Hathaways Bright FutureWarren Buffettis coming off one of the
biggest investment coups of his long career with the closing of the
Kraft Foods Group Inc(NASDAQ:KRFT) Foods purchase of H.J. Heinz
Company(NYSE:HNZ) Holdings earlier this month.BuffettsBerkshire
Hathawayinvested $4.25 billion for a 50% equity stake in the $23
billion leveraged buyout of Heinz two years ago, along with a
partner, Brazils 3G Capital. Berkshire made a second $5 billion
equity investment with 3G when Kraft unveiled its deal for the
ketchup maker in March. Berkshire Hathaway Inc.(NYSE:BRK.A)
(NYSE:BRK.B) now is sitting on a 25% stake in the newKraft Heinz--
some 326 million shares -- worth $25 billion based on Krafts recent
share price of $77, resulting in a gain of almost $16 billion.
Thats a stunning profit in just two years. (3G has a similar
gain.)The Heinz score rivals anything ever achieved in the
private-equity industry. It also demonstrates that Buffett, who is
celebrating his 50th year at the helm of Berkshire Hathaway this
year, is still going strong ahead of his 85th birthday in August.
Berkshire is his baby, and the company is better than ever despite
the lackluster performance of its big equity portfolio, which is
dominated by four stocks: American Express Company(NYSE:AXP),
Coca-Cola, International Business Machines Corp.(NYSE:IBM), and
Wells Fargo & Co(NYSE:WFC)....................Im scratching my
head about Berkshire, says Jay Gelb, a Barclays PLC(NYSE:BCS)
(LON:BARC) analyst. The earnings power is stronger than ever, the
company has done a series of attractive acquisitions, and it just
closed on Kraft. None of that is reflected in Berkshire Hathaways
valuation. Gelb carries an Overweight rating and a price target of
$259,500, 22% above current levels.Downside appears limited, given
the companys rising book value and its willingness to aggressively
repurchase stock at 1.2 times book value, backed by a formidable
balance sheet with $58 billion in cash, or $44 billion of net cash
after subtracting $14 billion of debt. The net cash position is
equal to more than 10% of the companys market value of $350
billion.Barronshas written frequently about Buffett and Berkshire
Hathawayover the years, including a bullish 2012 piece when the
shares fetched $128,000, or 1.1 times book value (Buffetts Latest
Bargain: Berkshire Hathaway, Nov. 12, 2012). Buffett declined to
comment for this article.BUFFETT CONTINUESto hunt for what he calls
elephant-sized acquisitions that could total $35 billion or more,
although he hasnt done any big deals besides Heinz in the past few
years..................Berkshire is cheap, and the risk-reward is
favorable, says David Rolfe, chief investment officer at Wedgewood
Partners, a Ladue, Mo., firm that counts Berkshire among its
largest holdings. Buffett is giving you a road map on valuation,
and were closer to 1.2 times book than two times.
Charlie Munger: How One Life Hack From A Self-Made Billionaire
Leads To Exceptional SuccessCountless books and articles have been
written aboutWarren Buffett. Surprisingly few have been written
about his business partner of over 40 years, Charlie Munger.Charlie
Munger has stayed out of the public eye, giving only a small number
public talks, and hes rarely been covered in the media. At
Berkshire Hathaway Inc.(NYSE:BRK.A) (NYSE:BRK.B)s annual
shareholders meetings, he lets Buffett answer the questions, often
times commenting, I have nothing to
add........................Beyond The 10,000 Hour
Rule....................................Bill Gates has said of
Charlie Munger, He is truly the broadest thinker I have ever
encountered. From business principles to economic principles to the
design of student dormitories to the design of a catamaran he has
no equal Our longest correspondence was a detailed discussion on
the mating habits of naked mole rats and what the human species
might learn from them. Munger has, in short, been the ultimate
expert-generalist.The Rise Of The
Expert-Generalist................................
While the 10,000 hour rule works well in areas with defined
rules that dont change such as sports, music, and games, the rules
of business constantly and fundamentally change. Being an
expert-generalist allows individuals to quickly adapt to change.
Research shows that they: See the world more accuratelyandmake
better predictions of the futurebecause they are not as susceptible
to the biases and assumptions prevailing in any given field or
community. Have morebreakthrough ideas,because they pull insights
that already work in one area into ones where they havent been
tried yet. Build deeper connections with people who are different
than thembecause of understanding of their perspectives. Build more
open networks,which allows them to serve as a connector between
people in different groups. According to network science research,
having an open network is the#1 predictor of career success.Charlie
Munger's Approach To Being An Expert-GeneralistIn connecting the
dots across the disciplines, Charlie Munger has developed a set of
what he calls models, which he uses to assess investment
opportunities. In fact, hes identified over 100 of these models
that he uses frequently as of the publication ofPoor Charlies
Almanack. No doubt he continues to develop and perfect them.What
are these models exactly?The best way to explain is to take the
case of one he uses constantly, which he calls Two-Track analysis.
It combines insights from psychology, neuroscience and economics
about the nature of human behavior. This model instructs that when
analyzing any situation in which decision-making by people is
involved, which of course covers every business situation, he must
consider two tracks: How they would act if they behaved rationally,
according to their true best interests. How they would succumb to
the pull of a number of irrational psychological biases that seem
to be programmed into the human brain. Researchers haveidentified a
host of them, and Munger has incorporatedtwenty-five of them into
his Two-Track analysis model.Another example is classical
conditioning developed by Ivan Pavlov in the early 20th century.
Pavlov discovered that with the right conditioning, dogs would
salivate not just when eating food, but also in anticipation of it
when he walked into the laboratory. Munger applies the same logic
to business. In his book, he gives the example of how Coca-Cola
(one of Berkshire Hathaways largest holdings) conditions its
customers with the right frequency and type of advertising while
using their logo as the trigger.The following is a summary of his
rules on being an expert-generalist in his own words, excerpted and
condensed from the various talks hes given:
Rule #1: Learn Multiple ModelsThe first rule is that youve got
to have multiple modelsbecause if you just have one or two that
youre using, the nature of human psychology is such that youll
torture reality so that it fits your models.Its like the old
saying, To the man with only a hammer, every problem looks like a
nail. But thats a perfectly disastrous way to think and a perfectly
disastrous way to operate in the world.Rule #2: Learn Multiple
Models From Multiple DisciplinesAnd the models have to come from
multiple disciplinesbecause all the wisdom of the world is not to
be found in one little academic department.Rule #3: Focus On Big
Ideas From The Big Disciplines (20% Of Models Create 80% Of The
Results)You may say, My God, this is already getting way too tough.
But, fortunately, it isnt that toughbecause 80 or 90 important
models will carry about 90% of the freight in making you a
worldly-wise person. And, of those, only a mere handful really
carry very heavy freight.Rule #4: Use A Checklist To Ensure Youre
Factoring in the Right ModelsUse a checklist to be sure you get all
of the main models.How can smart people be wrong? Well, the answer
is that they donttake all the main models from psychology and use
them as a checklist in reviewing outcomes in complex systems.Rule
#5: Create Multiple Checklists And Use The Right One For The
SituationYou need a different checklist and different mental models
for different companies. I can never make it easy by saying, Here
are three things. You have to drive it yourself to ingrain it in
your head for the rest of your life.The Expert-Generalist Approach
In Different FieldsWhether or not you decide to follow Mungers
particular approach, one clear takeaway is the value of gaining a
wide breadth of knowledge while also drilling deeply into your area
of specialty.Many of the top scientists, business leaders,
inventors and artists throughout time have also achieved their
breakthrough successes by being an expert-generalist. Albert
Einstein was trained in physics, but to formulate his law of
general relativity, he taught himself an area of mathematics far
removed from his expertise, Riemannian geometry. James Watson and
Francis Crick combined discoveries in X-ray diffraction technology,
chemistry, evolutionary theory and computation to solve the puzzle
of the double helix. Steve Jobs, of course, drew on insights from
his study of calligraphy and a rich understanding of design to
create a new breed of computing devices.Here is an infographic with
25 of the top expert-generalists throughout history:
Copyright Michael Simmons 2015. All Rights Reserved.Bain &
Company chairman, Orit Gadiesh, attests to the value of being a
voracious reader across many domains in her own career,
saying:Being an expert-generalist has helpedBainsee things for our
clients that others miss, as we provide unique insights from one
industry into another. The approach has differentiated Bain from
its competitors.I bring into my work everything I do; all of my
past consulting projects, all of my readings [100+ books a year]. I
read novels. I read about physics, mathematics, history,
biographies, art. One reason I work well in Germany is that Ive
read a lot of German literature, German philosophers, German
history, etc., even though Im Israeli. Theyre great writers.
Likewise, I can work in France because Ive read their literature.
Ive read Japanese literature, Korean literature, English
literature, American literature, Israeli literature, and on and on.
I bring all of that somehow into my work. And I think that makes me
better at what I do. It also makes life more interesting.Whats
more, those who can bridge the gaps between silos are becoming more
valuable than ever as the amount of knowledge in the world and its
fragmentation continue to accelerate.Being An Expert-Generalist
Will Become More And More ValuedThe discipline known as
scientometrics is the science of science; it studies the evolution
of scientific knowledge. Two of the key findings of this field
are:The amount of academic research isdoubling every 9 yearsThe
number disciplines is growing exponentially.
As disciplines emerge and mature, they develop their own
cultures and languages. Each has its own terminology along with its
own journals and annual conferences. This specialization has
already become so extreme that those who are specialists in one
subfield of a discipline often know little to nothing about the
work going on in other subfields.Consider the increasing
specialization that has led to one important new area of science,
epigenetics. Epigenetics is essentially the study of how
environmental factors affect how our genes are expressed. When
biology emerged as a field of its own out of medicineand natural
history in the 19th century, it would have been possible for any
biologist to gain a good grasp of the whole field. Today, many
geneticists would tell you they dont have any real understanding of
the findings in epigenetics.
Given this state of affairs, many professionals have determined
the best approached is to go into sub, sub, sub specialties, where
they can hope to become one of the best if they follow the 10,000
rule. That can indeed be fruitful. But opportunities also abound
for those who instead develop an aptitude for building connections
across disciplines.Expert-generalists face far less competition.
The more fields you can pull from, the fewer people youll find
taking the same approach. When it comes to drilling into one
domain,the competition is generally fierce.Narrowly
specializingalso leaves you vulnerable to the ever-more daunting
forces of change. Orit Gadiesh offers insight in this regard:As
technology, globalization, geopolitical challenges, and competition
accelerate the disruption of business, people are confronted with
challenges, customs, and issues they have never experienced before.
I find that experts someone with deep knowledge limited to just one
area often lack the flexibility needed to adapt to change and can
be easily flustered or, worse, be completely derailed.Curiouser and
CuriouserThe business world has placed great emphasis on focus, and
rightly so. It is a vital ingredient of success. But more emphasis
must now be placed on curiosity. Too often, we are so pressed by
the day-to-day demands of work that we arent making time for
exploration, diving into areas entirely outside our range of
experience, letting our minds run, and finding inspiration from
encountering new ideas with uncertain payoffs.So, when you find
yourself pushing back, the inner voice of work overload screaming
that you dont have time to be reading that book you just picked up
about the physics of time travel or the novel someone recommended
by the Nigerian Nobel Prize winner, remember this: Bill Gates
recalls that the longest correspondence hes had with Charlie Munger
wasnt about an investment, it was about the mating habits.