From Peter Bevelin’s “All I want to know is where I’m going to die so I’ll never go there.”
Investing tips from Buffet, Munger, and Bevelin:
“I pay no attention to economic forecasting. I worry about being in good business with good people. That’s all I focus on…I’ve never based a decision on expansion of a business or anything like that based on an economic forecast because A) it’s not reliable and B) it’s not important…What you have to look at is where you expect the business to be 5, 10, or 20 years from now…What matters is the average earnings power and the sustainability of its competitive advantage.” -Buffet (p. 185)
“For example, just the other day some expert economist said that the U.S. economy will start growing with 3% a year- and he looked very confident on television.” “How can they know that? They can’t. Look at their past predictions- just look at what they said a year ago and compare this with what actually happened and you will find they were all wrong. And since their past predictions were wrong why should their present forecasts be right? If they didn’t know back then, why should they know the future now?” “So don’t believe them- No one can predict the economy.” – Bevelin (p. 186)
“People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.” – Munger (p. 186)
“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced.” – Munger (p. 194)
“I always start from a position of fear…I always look at the downside first in anything.” – Buffett (p. 131)
“It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his- and those prices varied widely over short periods of time depending on this mental state- how in the world could I be other than benefited by his erratic behavior?” “If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.” -Buffett (p. 195)
“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner or equities would otherwise enjoy.” – Buffett (p. 197)
“The best time to get rich is a crisis. You just need independent thinking, financial preparation, and mental preparation…If you can detach yourself temperamentally from the crowd – you get very rich. And you don’t have to be very bright…It doesn’t take brains, it takes temperament.” – Buffett (p. 198)
“Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born.” -Buffett (p. 187)
“I think you’re a better manager or investor if you look at each decision that you’ve made of importance and see which ones worked out and which ones didn’t- and figure your batting average. Then, if your batting average gets too bad, you better hand the decision-making over to someone else.” – Buffett (p. 206)
“Warren and I always cite Lord Keynes, ‘We’d rather be roughly right than precisely wrong…In other words, if something is terribly important, we’ll guess at it rather than just make our judgement based on what happens to be easily countable.” – Munger (p. 189)
“If you need to use a computer or calculator to make the calculation, you shouldn’t buy it…It should scream at you…we do not sit down with spreadsheets and do all that sort of thing. We just see something that obviously is better than anything else around that we understand- and then we act.” – Buffett (p. 190)
“I thought only of what the properties would produce and cared not at all about the daily valuations. Games are won by players who focus on the playing field- not by those whose eyes are glued to the scoreboard.” – Buffett (p. 196)
“Stocks are riskless if held over a long time frame as you are simply giving up purchasing power now for later. Cash is the risky asset. Risk in stocks is not what the companies will do. Traditional finance teaches that Beta is a measure of risk but volatility isn’t risk. Risk is loss of purchasing power. Volatility declines over a long enough timeframe. It is individuals that make investments risky…People think stocks are riskier than bonds, which is not true for a long term horizon.” – Buffett (p. 197)
“But temperament along won’t do it…You have to have the temperament and the right basic idea- and then you have to keep at it with a lot of curiosity for a long, long time.” Buffett (p. 199)
“It’s not supposed to be easy. Anyone who finds it easy is stupid.” – Munger (p. 199)
“I’ve always felt that people were crazy to risk what they have and need- namely, wonderful jobs- for tiny, little, incremental advantages or to avoid tiny, little incremental detriments.” – Munger (p. 125)
“If you take the 16 of them, they have about as high an IQ as any 16 people working together in one business in the country…An incredible amount of intellect in one room. Now you combine that with the fact that those people had extensive experience in the filed they were operating in.” “They had in aggregate, the 16, had 300-400 years of experience doing exactly what they were doing and then you throw in the third factor that most of them had most of their substantial new worth’s in the businesses. Hundred and hundreds of millions of their own money up (at rick), super high intellect and working in a field that they knew. Essentially they went broke. That to me is absolutely fascinating.” (p. 127)
“LTCM was a classic example of smart people doing dumb things- their IQ got in the way. People that know the edge of their competency are safe, those that don’t are dangerous.” – Munger (p. 127)
“Charlie and I have run into more dysfunctional people with 160 IQs than most people, probably…We’ve seen people self-destruct in pursuit of making money they didn’t really need because they were already rich.” – Buffett (p. 128)
“I think the people who say, ‘I need more’ and therefore try to get more than they need, are likely to get into terrible trouble.” – Buffett (p. 129)
“I try to operate in a way where I can’t lose significant sums over time. I might not make the most money this way, but I will minimize the risk of permanent loss. If there’s a 1 in 1000 chance that an investment decision can threaten permanent loss to other people, I just won’t do it.” -Buffett (p. 130)
“Indiviually, we probably worry more about the downside than just about any manager you can find. Collectively, it’s Armageddon around here every day. But we care about that.” – Buffett (p. 131)
“Most stocks at one time or another sell at very silly prices, and it doesn’t take a high IQ to figure out that they’re cheap…” – Buffett (p. 138)
“We are very inexact…How certain we are is the most important part…You’d be amazed at how inexact we are…Using precise numbers is, in fact, foolish; working with a range of possibilities is the better approach.” – Buffett (p. 138)
“It take character to sit there with all that cash and do nothing. I didn’t get to where I am to going after mediocre opportunities.” – Munger (p. 139)
“Really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.” – Munger (p. 139)
“You make your best buys when people are overwhelmingly fearful...The most common cause of low prices is pessimism- some times pervasive, some times specific to a company or industry.” – Buffett (p. 140)
“Remember the late Barton Biggs’ observation: ‘ A bull market is like sex. It feels best just before it ends.” – Buffett (p. 141)
“It’s just the scope of human beings to do crazy things, self-destructive things…most people, even smart people, have trouble not getting caught up in the game and thinking I’ll just dance one more dance like Cinderella at five minutes till twelve or something like that because they think they are smarter than the rest of the public…Or they don’t protect themselves against something that will come totally from right field.” – Buffett (p. 141)
“A climate of fear is your friend when investing; a euphoric world is your enemy.” – Buffett (p. 141)
“If you stay rational yourself, the stupidity of the world helps you.” – Munger (p. 141)
“People will always behave in a manic-depressive way over time…When people panic, when fear takes over, or when greed takes over, people react just as irrationally as they have in the past…Occasional outbreaks or those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease.” -Buffett (p. 142)
“Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Buffett (p. 142)
If you took our top 15 decisions out, we’d have a pretty average record. It wasn’t hyperactivity but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.” – Munger (p. 142)
“Charlie and I decided long ago that in an investment lifetime, it’s just too hard to make hundreds of smart decisions…Therefore, we adopted a strategy that required our being smart- and not too smart at that- only a very few times.” -Buffett (p. 143)
“An investor needs to do very few things right as long as he or she avoids big mistakes.” – Buffett (p. 143)
“Periodically, financial markets will become divorced from reality- you can count on that” – Buffett (p. 143)
“Risk comes from not knowing what you are doing.” – Buffett (p. 148)
“Macroeconomics people…are often wrong because of extreme complexity in the system they wish to understand.” “And we haven’t seen great successes by others involved in macroeconomic predictions. They get a lot of air time but not much else. The trouble with making all these macroeconomic predictions is that people start to think they know something. It’s much better to just say you’re ignorant.” – Munger (p. 186)
“In the 54 years we worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.” – Buffett (p. 185)
“You can’t stand to see your neighbor getting rich. You know you’re smarter than he is, and he’s doing these things and getting rich. And your wife says that you’re smarter than he is and he’s richer than you are, you know, so why aren’t you doing it.” “Pretty soon you start doing it. And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots. And that’s what happens. Everybody just kind of goes along. And you look kind of silly if you disagree.”- Buffet (p. 43)