From Peter Bevelin’s “All I want to know is where I’m going to die so I’ll never go there.”
My Favorite Quotes from Bevelin’s Book:
“This modern generation, which has gotten so good at doing two or three things at once- multi-tasking, aided by electronic devices- I’ll confidently predict will end up worse than people more like Warren Buffett with more solitary reading time and less trying to do three things at once”- Munger (p.6)
“We recognized early on that very smart people do very dumb things, and we wanted to know why and who, so we could avoid them.” – Munger (p.8)
“It’s ego. It’s greed. It’s envy. It’s fear. It’s mindless imitation of other people. I mean there are a variety of factors that cause that horsepower of the mind to get diminished dramatically before the output turns out.” – Buffet -(p. 8)
“I would say if Charlie and I have any advantage it’s not because we’re so smart, it is because we’re rational and we very seldom let extraneous factors interfere with our thoughts.” -Buffet (p. 9)
“We don’t let other people’s opinion interfere with it…we try to get fearful when others are greedy. We try to get greedy when others are fearful. We try to avoid any kind of imitation of other people’s behavior. And those factors are the factors that cause smart people to get bad results.” -Buffett (p.9)
“Smart, hard-working people aren’t exempted from professional disasters resulting from overconfidence. Often they just go aground in the more difficult voyages on which they choose to embark based on self-appraisals in which they conclude that they have superior talents and methods.”- Munger (p.9)
“If I could just avoid all the folly, maybe I could get an advantage without having to be really good at anything…And so this process I have gone through life identifying folly and trying to avoid it has worked out wonderfully for me”- Munger (p.11)
“The trick is to learn most lessons from the experiences of others” – Buffet (p.19)
“The more hard lessons you can learn vicariously rather than through your own hard experience, the better.” – Munger (p. 19)
“Every time you hear the phrase ‘Everybody else is doing it’ it should raise a huge flag. Why would somebody offer such a rationale for an act if there were a good reason available?” -Buffet (p. 48)
“You have to practice the right decision-making process and be skeptical of conventional wisdom. Keep your head when everyone else is losing theirs…You don’t have to go crazy because everybody else is.” – Munger (p. 49)
“By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.” -Buffet (p. 49)
“You do have to have an emotional stability, and sort of an inner peace about your decisions- because it is a game where you get subjected to minute-by-minute stimuli where people are offering opinions all the time. You have to be able to think for yourself.” “Toughness is important. There is a lot of temptations to cave in or follow others but it is important to stick to your own convictions. I have seen so many smart people do dumb things because what everyone else is doing.” -Buffet (p.49)
“Why are we different? We’re working harder at trying to be rational. If you don’t work hard at it, and just float along, you will fall victim to the folly of the crowd- and there will always be folly of the crowd.”- Munger (p. 49)
“The difference between successful people and very successful people is that very successful people say ‘no’ to almost everything.” “You’ve got to keep control of your time. And you won’t keep control of your time unless you can say no. You can’t let other people set your agenda in life.” – Buffet (p. 51)
“You may well say, ‘Who wants to go through life anticipating trouble?’ Well, I did, trained as I was. All my life I’ve gone through life anticipating trouble…It didn’t make me unhappy to anticipate trouble all the time and the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact in helped me.” Munger (p. 62)
“you can always tell someone to go to hell tomorrow…You haven’t missed the opportunity. Just forget about it for a day. If you feel the same way tomorrow, tell them then- but don’t spout off in a moment of anger.” – Buffet (p. 64)
“I do think it’s a mistake to get angry with people that disagree with you…it does not help when you demonize or get too violent with the people you’re talking to.” – Buffet (p. 64)
“It’s not greed that drives the world, but envy” – Buffet (p. 65)
“Our experience is that envy is what really drives people. You can give someone $2 million bonus and they’re happy until they see the next guy got $2.1 million and then they’re miserable.” – Buffet (p. 65)
“If you’re comfortably rich and someone else is getting richer faster than you by…so what?! Someone will always be getting richer faster than you. This is not a tragedy…someone else is always going to be doing better at any human activity you can name.” – Munger (p. 66)
“I learned that it pays to hang around with people better than you are, because you will float upward a little bit. And if you hang around with people that behave worse than you, pretty soon you’ll start sliding down the pole. It just works that way.” – Buffet (p. 70)
“At the end of they day- if you live long enough- most people get what they deserve…Ask the question: How can you best get what you want? The answer: Deserve what you want! How can it be any other way?” – Munger (p.71)
“You want to deliver to the world what you would buy if you were on the other end…the people who’ve had this ethos win in life, and they don’t just win money and honors. They win respect, the deserved trust of the people they deal with. And there is a huge pleasure in life to be obtained from getting deserved trust.” – Munger (p. 71)
“I am so blessed. I get to do what I like to do with people that I love. That is happiness. I am happy day after day after day. How could I be any happier?” “When you get to be my age you will be successful if the people who you hope to have love you, do love you. Charlie and I know people who have buildings named after them, receive great honors, etc. and nobody love them- not even the people who give them honors.” Buffet (p. 71)
“The only way to be loved is to be lovable. You always get back more than you give away. If you don’t give any you won’t get any.” “Some people never learn that. They’re busy cheating people, cutting corners, lying to them, all kinds of things and they think they’re a success because they have tens of millions of dollars later in life. I don’t think they are a success…Ultimately, money is not the ultimate measure of success, but rather, it is how many loved one you have around you.” – Buffett (p. 71)
I think it’s very important to have the right heroes…So I say, choose your heroes carefully, and then figure out what it is about them that you admire. Then you figure out how to do the same thing. It’s not impossible.” – Buffett (p. 72)
“They are simply a matter of deciding what you are going to do and what kind of person you are going to make out of yourself, and then doing it…You choose what kind of human being you’re going to be, and then other people choose whether they’ll associated with you or not.” – Buffet (p. 72)
“I have three basic rules. Meeting all three is nearly impossible, but you should try anyway: (1) Don’t sell anything you wouldn’t buy yourself. (2) Don’t work for anyone you don’t respect and admire. (3) Work only with people you enjoy.” – Munger (p. 74)
“It just doesn’t work if you don’t admire or trust them. I do not hire people I would not want as friends or neighbors. I work with people who make my life easier. You can’t work with people who make your stomach grind.” – Buffett (p. 74)
“Make yourself a person that you would want to hire. We look for people with not necessary the highest IQs, but people who have a good work ethic, are loyal, honest and reliable.”- Buffet (p. 74)
“I first look for trust, regardless of talent. First you need trust and then good judgement…Trustworthiness is more important than brains. We wouldn’t hire anyone- no matter how able they were- if we didn’t trust them.” – Munger (p. 74)
“You’re a disaster if you don’t know the edge of your competency. Warren frequently says, ‘I’d rather deal with a guy with an IQ of 130 who thinks it’s 125 than a guy with an IQ of 180 and thinks it’s 200. That second guy will kill you.” – Munger (p. 76)
“I do think that knowing the edge of your competency is important. If you think that know a lot more than you do, you will get in trouble.” – Munger (p. 76)
“You don’t have to have an opinion on everything.” “Charlie and I competent to make judgements on certain things, and not on other things. We try to focus on what we can understand.” Buffet (p. 76)
“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge. When you don’t know and you don’t have any special competence, don’t be afraid to say so…Nobody expect you know everything about everything.” – Munger (p. 77)
“Everything looks rosy…when you first are looking at a deal. You don’t see the downsides. You don’t see the execution problems, you don’t see the people who are going to leave.” – Buffet (p. 79)
“The right way to get a good spouse is to deserve one. The same goes for getting a good business partner…If you just behave yourself correctly, it’s amazing how well it works.” -Munger (p. 89)
“I hardly know anybody who’s done very well in life in terms of cognition that doesn’t have somebody trusted to talk to. Einstein would not have been able to do what he did without people to talk to…” – Munger (p. 90)
“Charlie is my canary in the coal mine…He sees any valid weakness in 60 seconds… People believe what they want to believe. Everyone rationalized their actions. A partner like Charlie can point it out to me. If we have a strength, it is what we think things through and we have the advantage of having each other. We can not influenced by other people.” “To have someone that you respect enormously say, ‘you know, you’re really out in an area where you don’t belong, Warren’. I mean, I will pay attention to him when he says that , and he’ll say it.” – Buffet (p. 90)
“You have to have someone who tells the truth…There’s just no way that Charlie would not tell me the truth…Charlie…immediately…thinks, he sees the facts so fast and thinks so fast, and he doesn’t waste any time making arguments just for the hell of it.” – Buffet (p. 90)
“When a problem exists, whether in personnel or in business operations, the time to act is now.” – Buffet (p. 92)
“What the human being is best at doing, is interpreting all new information so that their prior conclusions remain intact.” – Buffet (p. 96)
“It is easy to see that a quickly reached conclusion…combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man.” – Munger (p. 96)
“No matter how bad some humans have handled things, they are just keeping their previous conclusions. It’s the normal way of handling things for humans.” – Munger (p. 96)
“It’s very hard to change people when the incentives are in the opposite direction.” – Munger (p.97)
“When a better tool comes along (idea or approach), what could be better than to swap it for your old, less useful tool? Warren and I routinely do this, but most people, as Galbraith says, forever cling to their old, less useful tools.” – Munger (p. 98)
“I find it amazing how difficult intelligent people have to change their minds- no matter how wrong they are” – Munger (p. 98)
“It is a great habit to be willing to change your mind” – Munger (p. 98)
“Darwin’s result…he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had.” (p. 99)
“Studying counter-evidence is a highly useful activity, though not one always greeted with enthusiasm at citadels of learning.” Charlie and I believe that when you find information that contradicts your existing beliefs, you’ve got a special obligation to look at it- and quickly.” Buffett (p. 99)
“It’s my working hypothesis that it is, but then I go and look for the facts, and I try not to be selective about the facts that I use as input…always observe that rule about not letting the hypothesis determine the story…you have to give up that hypothesis if it turns out not to be correct or it it’s misleading.” – Buffet (p. 100)
“If you minimize objectivity, you ignore not only a lesson from Darwin but also one from Einstein. Einstein said that his successful theories came from ‘Curiosity, concentration, perseverance, and self-criticism’…By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas.” – Munger (p. 100)
“Similarly, other modern decision makers will often force groups to consider skillful counterarguments before making decisions.” – Munger (p. 101)
“You can’t avoid wrong decisions. But if you recognize them promptly and do something about them, you can frequently turn the lemon into lemonade.” – Munger (p. 102)
“The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behavior or your approach as you get new information.” – Buffett (p. 102)
“Investing is not as tough as being a top-notch bridge player. All it takes is the ability to see things as they really are.” -Buffet (p.102)
“A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity: status, or any other valued thing.” – Munger (p. 104)
“man…will often compare what is near instead of what really matters. For instance, a man with $10 million in his brokerage account will often be extremely irritated by the accidental loss of $100 out of the $300 in his wallet” – Munger (p. 104)
“One of the best antidotes to this folly is a good poker skill learned young…fold early when the odds are against you…rethink and say, ‘I can afford to write this one off and live to fight again. I don’t have to pursue this thing as an obsession- in a way that will break me.'” – Munger (p. 106)
“If you and a friend are discussing Old Joe and that he suffers from some of these tendencies it is OK but if you tell Joe directly he is suffering from some of these tendencies he will become very hostile.” – Munger (p. 107)
“I’d say that the history that Charlie and I have had of persuading decent, intelligent people who we thought were doing unintelligent things to change their course of action has been poor…When people want to do something, they want to do something.” – Buffett (p. 107)
“Management changes, like marital changes, are painful, time-consuming and chancy.” “We don’t try to change people. It doesn’t work well…We accept people the way they are.” – Buffet (p. 107)
“Changing cultures is really tough. I’ve had a little experience with that. The trick in business is to get in with a culture that’s already the right kind.” – Buffett (p. 108)
“Someone once asked See’s chairman, Chuck Huggins, ‘How do you them (the employees) to be so friendly?’ Chuck’s reply was, ‘The most important thing is to hire friendly people.'” “And that’s obvious, but it’s the single most important thing to do. It’s sort of like marrying. You don’t want to marry to change somebody. Similarly, it’s a lot easier to hire the right person than to change them.” -Buffett (p. 108)
“The self-serving bias of man is very extreme and should have been used in attaining the correct outcome…You want to persuade somebody, you really tell them why…Incentive..mater..Vivid evidence..works.” – Munger (p. 109)
“No one knew this better than Carl Braun, who designed oil refineries with spectacular skill and integrity. he had a very simple rule… You had to tell Who was to do What, Where, When, and Why. And if you wrote a communication leaving out your explanation of why the addressee was to do what was ordered, Braun was likely to fire you because Braun well knew that ideas got through best when reasons for the ideas were meticulously laid out.” – Munger (p. 110)
“Ask yourself what are the arguments on the other side…The study of the law is good for people in that it constantly ask you to consider one side and then consider the other– what arguments can be made on one side and then on the other as you seek to determine which rule of law would be better and why. That process sort of forces objectivity…It’s a huge plus.” – Munger (p. 112)
“It’s hard to change others’ behavior, and it’s not helped by shouting.” – Buffet (p. 112)
“I think the general idea that people should shout about everything they disapprove of is just suspect.” “In life you have to choose your battles and pick your spots. And, if we all screamed about everything we disapproved of, we wouldn’t be able to hear each other.” – Munger (p. 112)
“When you announce that you’re a loyal member of some cult-like group and you start shouting out the orthodox ideology, what you’re doing is pounding it in, pounding it in, pounding it in.” “Envy, huge self-pity, extreme ideology, intense loyalty to a particular identity- you’ve just taken your brain and started to pound on it with a hammer.” – Munger (p.113)
“I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.” – Munger (p. 114)
“For example, take our strong and passionate views on complex issues- the economy, climate change, crime, energy, health care, foreign policy, you name it. We think we know the correct solution but do we really? As Peter Medawar said, ‘The intensity of a conviction that a hypothesis is true has no bearing over whether it is true or not.” – Bevelin (p.114)
“Another ‘trick’ is to write- writing is a kind of thinking. Writing helps you to clarify your thoughts- because to write clearly you must first think clearly.” – Bevelin (p.116)
“If you understand an idea, you can express it so others can understand it. I find that every year when I write the report. I this these blocks. The block isn’t because I’ve run out of words in the dictionary. The block is because I haven’t got it straight in my mind yet. There’s nothing like writing to force you to think and to get your thoughts straight.” – Buffet (p. 117)
“I learn while I think when I write it out. Some of the things I think I think, I find don’t make any sense when I start trying to write them down and explain them to people…And if it can’t stand applying to pencil to paper, you’d better think it through some more.” Buffet (p. 117)
“Because both bad and good behavior are made contagious by Social-Proof Tendency, it is highly important that human societies (1) stop any bad behavior before it spreads and (2) foster and display all good behavior.” – Munger (p. 119)
“You have to set up a system in which it’s not easy for human beings to cheat or delude themselves.” (p. 120)
“It’s hard to fix human systems without fixing human incentives…If the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage that you won’t like the system.” (p. 120)
“You can’t blame the tiger for being a tiger. But you need a gamekeeper… It is insane to blame the tiger when he gets out of the cage and goes on a rampage. The cage has to be stronger and the keepers should know better than to leave the door unlocked.” – Munger (p. 125)
“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)
“I always start from a position of fear…I always look at the downside first in anything.” – Buffett (p. 131)
“Individually, 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)
“You either figure out what’s in your customers’ mind and decide you are going to serve them; or you are not going to be in business…Just keep taking care of the customer…In the end, nobody that’s ever taken good care of the customer has ever lost…that is the name of the game.” -Buffett (p. 151)
“One of the directors (Daily Journal) said very simply, we should make a list of everything that irritates a customer, and then we should eliminate those defects one by one.” – Munger (p. 152)
“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.” -Buffett (p. 152)
“You can almost measure the strength of a business over time by the agony its managers go through in determining whether a price increase can be sustained. You can learn a lot about the durability of the economics of a business by observing the price behavior.” – Buffett (p. 154)
“Any time you can charge more for a product and maintain or increase market share against well entrenched, well known competitors, you know that you have something very special in people’s minds.” – Buffett (p. 154)
“There seems to be some perverse human characteristic that likes to make easy things difficult.” “Ben Graham taught me 45 years ago that in investing it is not necessary to do extraordinary things to get extraordinary results. In later life, I have been surprised to find that this statement holds true in business management as well. What a manager must do is handle the basics well and not get diverted.” -Buffett (p. 155)
“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. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.” – Buffett (p. 157)
“The trick is to have no competitors. That means having a product that truly differentiates itself…advantages that other people can’t copy…You can develop a good restaurant and somebody can come along and copy it the next day and figure out something new to add to the menu or add a little more parking. People are always looking at successful models and going after them. That’s terrific for the consumer. It can be very brutal to in those kind of businesses.” – Buffett (p. 157)
“Literally hundreds of turnaround possibilities in dozens of industries have been described to us over the years and, either as participants or as observers, we have tracked performance against expectations. Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” – Buffett (p. 159)
“Good jockeys will do well on good horses, not on broken down nags” – Buffett (p. 159)
“The margin of safety in a great business is that it will stand a fair amount of mismanagement if that unfortunate circumstance happens to come along.” – Munger (p. 161)
“There’s a huge difference between the business that grows and requires lots of capital to do so and the business that grows and doesn’t require capital…if you’re investing, you should pay a lot of attention to that.” – Buffett (p. 161)
“A business that must deal with fast-moving technology is not going to lend itself to reliable evaluations of its long-term economics.” “That’s the problem in high tech- a few will profit, but a lot will have problems, and it’s hard to see who does what in advance. We know that Snickers bars will still be sold and do well in 10 years. That doesn’t make candy a better business; it’s just that we know who the winner is.” – Buffett (p. 163)
“When I’d interview managers, I’d ask what their business nightmare is…If you had a silver bullet and you could put it through the head of one competitor, which competitor and why? You will find who the best guy is in the industry.” – Buffett (p. 164)
“If you substitute 5% of the retail volume via the internet where real estate is essentially free, you can have a store in every town in the world through the internet without having any rental expense…I would give a lot of thought to that if I were owning a lot of retail rental space.”- Buffett (p. 166)
“The most extreme mistakes in Berkshire’s history have been mistakes of omission. We saw it, but didn’t act on it…Since mistakes of omission (aren’t visable), most people don’t pay attention to them. We rub our noses in mistakes of omission…There’s nothing that improves wisdom more than having your own nose whacked pretty hard.” – Munger (p. 167)
“And we don’t kid ourselves by having lots of studies and reports made. They’re going to support whatever they think the guy who pays’em wants anyways. So they don’t mean anything. They’re nonsense.” – Buffett (p. 167)
“I have a habit in life. I observe what works and what doesn’t and why.” I do it automatically…If you have that temperament, you will gradually learn. If you don’t, then I can’t help you.” – Munger (p. 169)
“In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world.” – Buffett (p. 170)
“Some of the most important miscalculations come from what is accidentally associated with one’s past success.” – Munger (p. 170)
“The proper antidotes to being made…a patsy by past success are (1) to carefully examine each past success, looking for accidental, noncausative factors associated with such success that will tend to mislead as one appraises odds implicit in a proposed new undertaking and (2) to look for dangerous aspects of the new undertaking that were not present when past success occurred.” -Munger (P. 171)
“If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consists of librarians.” -Buffett (p. 171)
“Future profitability of the industry will be determined by current competitive characteristics, not past ones… The company should be viewed as an unfolding movie, not as a still photograph. Those who focused in the past on only the snapshot of the day sometimes reached erroneous conclusions.” – Buffet (p. 171)
“Projections generally do more harm than good- especially when they are prepared by the people who desire a certain outcome.”- Munger (p. 171)
“Usually, I don’t use formal projections. I don’t let people do them for me because I don’t like throwing up on the desk, but I see them made in a very foolish way all the time, and many people believe in them, no matter how foolish they are. It’s an effective sales technique in America to put a foolish projection on a desk.” – Munger (p. 171)
“Don’t ask the barber whether you need a haircut.” – Buffett (p. 172)
“All businesses should think about what can mess up their business model and position. We look at all of our businesses as subject to change…We want manages who are thinking about change, and what’s going to be needed for their business model in the future. We know it won’t look the same.” – Buffett (p. 173)
“Those who will not face improvements because there are changes will face changes that are not improvements.” – Munger (p. 174)
“We often underestimate competition because we think we are alone and unique. We are too focused on our own skills and plans – what we can do and want to do- and are blind to our competitors’ abilities and actions. But as we all know, our outcome also depends on present and future competition. Joe Roth, former chairman of Walt Disney Studios business, you think, ‘I’ve got a good story department, I’ve got a good marketing department, we’re going to go out and do this.’ And you don’t think that everybody else is thinking the same way.” – Bevelin (p. 175)
“In business, I commonly see people underappraise both the competency and morals of competitors they dislike. This is a dangerous practice, usually disguised because it occurs on a subconscious basis.” – Munger (p. 176)
“It’s in the nature of things that most small businesses will never be big businesses. It’s also in the nature of things that most big businesses eventually fall into mediocrity or worse…Look at the history of big companies in the world and the record in not good…We think we are doing well because we have a better system than most people.” – Munger (p. 176)
“Almost all great records eventually dwindle…I think that’s the natural consequence of competitive life…that it gets tough.” – Munger (p. 176)
“The most important thing to do when you find yourself in a hole is to stop digging.” – Buffett (p. 177)
“Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Buffett (p. 177)
“When people get their ego involved, people sometimes do things they normally wouldn’t do. We try to eliminate incentives that would cause people to misbehave not only for financial rewards but also for ego satisfaction.” – Buffett (p. 179)
“The paper record is usually a better indicator of talent.” – Munger (p. 179)
“It would be tough to evaluate a class of MBAs and pick which ones would prove to be the best managers, just like it would be tough to pick the best golfer by watching them hit on the practice range. We haven’t tried to evaluate, before they have a record, who will be a superstar managers. Instead, we find people who’ve batted .350 for 10-50 years. We just assume we won’t screw it up by hiring them. We take people who play the game very well and allow them to play.” – Buffett (p. 179)
“I can’t put passion into someone. But I can create a structure that takes passion away. We focus on not messing up something that is already good.” – Buffett (p. 180)
“We do not find it particularly helpful to talk to managements…The numbers tell us a lot more than the managements.” – Buffett (p.180)
“If you sit down and talk to the key manager for an hour and you’re a smart person, I think that could be a significant plus. But a smart person might be right 60% of the time and, for the balance, be misled. If you have some specific questions that the management is going to answer, obviously that would be helpful.” – Munger (p. 180)
“Another thing, some managers may be great in one business but lousy in another.” – Bevelin (p. 181)
“Just because you run one business well don’t mean you will run another one well. You may be a great ballet dancer but a lousy weight lifter.” – Munger (p. 181)
“The secret to being successful in any field is getting very interested in it…I could force myself to be fairly good in a lot of things, but I couldn’t excel in anything in which I didn’t have an intense interest.” – Munger (p. 181)
“I think that is the biggest thing in business, figuring out where you are good and where you are not…If you’re good at one thing, you’re not necessarily good at another. You ought to use your talents where they’re most useful and get others to use theirs.” – Buffett (p. 181)
“Mike Tyson doesn’t try to run Berkshire, and I don’t try to get in the ring with Mike Tyson…When my wife and I had a baby, we hired an obstetrician-I didn’t try to do it myself. When my tooth hurts, I don’t turn to Charlie…The idea that you let other people do what they’re best at and you do what you’re best at, I’ve carried from lawn moving to philanthropy.” – Buffett (p. 181)
“Stick with what they understand and let their abilities, not their egos, determine what they attempt. (Thomas J. Watson Sr. of IBM followed the same rule: ‘I’m no genius,’ he said, I’m smart in spots- but I stay around those spots.’) – Buffett (p 182)
“I don’t want to play in a game where the other guy has an advantage. Somebody asked, ‘How do you beat Bobby Fisher?’ The answer was ‘you play him any game except chess’…That ability to know when your odds are good versus playing outside that game is a huge asset.’ – Buffett (p. 182)
“You want to work where there is a little competition…One of the secrets of life is weak competition.” Bufett (p. 183)
“Obviously if you want to get good at something which is competitive, you have to think about it and practice a lot. You have to keep learning because world keeps changing and competitors keep learning.” – Munger (p. 184)
“You have to go to bed wiser than you got up. As you try to master what you are trying to do – people who do that almost never fail utterly. Very few have ever failed with that approach. You may rise slowly, but you are sure to rise.” – Munger (p. 184)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“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)
“And I don’t see how you can wise up all the time if you aren’t working at it.” – Munger (p. 224)
“Actually, I probably spend five or six hours a day on reading.”- Buffett (p. 224)
“You’d be amazed at how much Warren reads- and at how much I read.” “Nothing has served me better in my long life than continuous learning.” – Munger (p. 224)
“I think if you assimilate everything in that simple book, you’ll know a lot more than about 95% of your compatriots. And it’s not hard to do. So Peter Kaufman has made it easy for you.” – Munger (p. 224)
“It helps to have a generalized competency in dealing with words, and numbers and quantities, and concepts. Of course, it helps to practice with that competency. And if you then collect follies the way I do and stay away from the follies, when you’re as old as I am, you’ll be rich old man.” – Munger (p. 224)
“There’s nothing remarkable about it. I don’t have any wonderful insights that other people don’t have. Just slightly more consistently than others, I’ve avoided idiocy…All I’m trying to be is be non-idiotic. I find that’s all you have to do to get ahead in life is to be non-idiotic and live a long time.” – Munger (p. 225)
“It really is simple- just avoid doing the dumb things. Avoiding the dumb things is the most important.” – Buffet (p. 225)
“So if you just avoid idiocy, have a good character and do it every day- it’s amazing how well it works.” – Munger (p. 225)