Richer, Wiser, Happier Book Excerpt

Original link: https://www.ixiqin.com/2023/08/16/excerpt-from-the-book-richer-wiser-and-happier/

Book Basic Information

Title: Richer, Smarter, Happier: How the World’s Top Investors Achieve Win-Win in the Market and in Life
Author: William Green
Translator: Ma Linmei
Introduction: “Wealthier, Wiser, and Happier” introduces the investment wisdom of more than 40 investment masters including Warren Buffett, Charlie Munger, John Templeton, and Howard Marks. In sharing the daily stories of in-depth contact with many investment masters, the author William Green summed up the way of life of investment masters, and also discovered the commonalities of these first-class investment masters. They are all:
Practitioners of long-termism;
A disciplined follower who is good at patience;
Calm and tough investor.
Publication time: 2022-03-01 00:00:00
ISBN: 9787515365718
Publisher: China Youth Publishing House

book excerpt

Foreword How Great Investors Think

As he explained to me, investing is a process of constantly calculating probabilities: “Everything depends on probabilities, there is no certainty.”
Lynch, who played poker in high school, college, and in the military, told me, “Learning to play poker or bridge, anything that allows you to learn about probability … is better than reading about the stock market. .”
It is a healthy way of thinking about investing and life as a game, and we must deliberately and consistently seek ways to maximize our odds of success. The rules are elusive and the outcomes uncertain, but the game has smart plays and silly plays.
You don’t necessarily get it right every time, but predictions are better than pure fate…so we turned a game of pure chance into one where we have an advantage, an advantage we gain with additional information.
For example, he knows that he’s more likely to make bad decisions when he’s in “emotional mode,” so when he’s “angry or angry” at someone, he takes a step back and asks himself, “What do you really know?” What? Are your feelings reasonable?” His careful analysis often revealed that his adverse reactions were unwarranted.

Chapter 1: People Like Warren Buffett

First, whenever you buy a stock, you are buying a going concern, potentially valuable business, not just a piece of paper for speculators to trade.
Second, Graham viewed the market as a “voting machine” rather than a “weighing machine,” which meant that stock prices often failed to reflect the true value of these businesses.
In the end, you should only buy a stock if it’s selling for well below a conservative estimate of its value.
Once we talked in his Irvine office, he said: “The first skill in investing is patience, extreme patience.” When the stock market crashed in 2008, he completed 10 investment transactions in two months. In normal times, he completed a small amount of investment. For example, he only bought two stocks in 2011, three stocks in 2012, and none in 2013.
As Munger said, there are two rules for fishing: the first is, where the fish are, there are the people; the second rule is, don’t forget the first rule.
He told me: “When there are few stocks to buy, you have to be very careful. You can’t force yourself to buy. You have to be patient. The bargains will come to you.” If you do that, you will lose money.”
One of his favorite quotes is philosopher Blaise Pascal’s “All human problems arise from the inability of man to sit quietly in a room by himself”.
As Buffett said at Berkshire’s 1998 shareholder meeting, “We don’t benefit from taking action, we only benefit from being right.”
Buffett is no stranger to the method of imitation. He said: “If you can learn from others, you don’t have to come up with too many ideas of your own. You can use the best ideas you have been exposed to. The key is to take the best. Abandon its dross instead of blindly copying everything.”
Buffett said, “The difference between successful people and truly successful people is that the latter say no to almost everything.”
My criteria are very simple: if its share price cannot double within a short period of time (two or three years), I will not have any interest in it. “
When the two of us were eating at a Korean restaurant in Irvine one night, I asked Pabrai why so many people didn’t follow his example. “They’re not as thick-skinned as I am, and they have higher self-esteem. To be a great imitator, you have to let go of your self-esteem,” he replied while eating spicy beef.
As we have seen, the key principles are not difficult to identify and follow. Be patient, be selective, and say no to almost any stock. Take advantage of polarizing sentiment swings in the market and buy stocks at a discount to their fundamental value. Invest within your own capabilities and avoid investing in companies that are difficult to understand. Bet small amounts on mispriced stocks with minimal downside risk and significant upside potential
It’s easy for smart people to be attracted to complex things and underestimate the immense impact and importance of simple ideas, but Pabrai is too pragmatist to fall into that trap. “It’s a very simple idea to harness the power of compound interest, it’s a very simple idea to emulate, and it’s a very simple idea to be honest.”
But the blunt Pabrai scoffed at any notion of him as a righteous savior, telling me in a Mumbai taxi: “What do you do when you feel life is meaningless? Don’t ruin someone else’s life.” .Leave a better planet, take care of the kids, and the rest is irrelevant games.”
As I reflected on Pabrai’s life experience and what it taught me, there were a few principles that particularly resonated with me. I wrote in the memo:
Principle 1: Follow like crazy.
Principle 2: Surround yourself with people who are better than you.
Principle 3: See life as a game rather than a survival contest or a life-and-death fight.
Principle 4: Be true to yourself, and don’t do things you don’t want to do or don’t think are suitable for you.
Principle 5: Live according to your own inner judgment standard, don’t care about other people’s opinions, and don’t be bound by external conditions.
Finally, I included a quote from Munger, which Pabrai often quotes: “Take the simple idea and take it seriously.”

Chapter Two

He is equally staunchly opposed to retirement, which he considers to be “deadly” physically and mentally damaging. In Templeton’s view, the misconception of retirement at sixty-five “greatly multiplies the idler, the useless,” who “will be a drag on civilization.”
Worldwide Laws of Life: 200 Eternal Spiritual Principles
Templeton, who saw how Tennessee farmers were forced to sell their land for almost zero dollars in the midst of an economic crisis, kept this lesson in mind: “You have to buy when others are desperate to sell.” Pessimism” is a wonderful word to describe moments of fear and despair.
Buffett, like Munger, has an intellectual appreciation for mispriced, asymmetric risk and reward bets. “The upside potential is far greater than the downside potential, and sure, I could lose $100, but if I don’t lose money, I could potentially make a lot,” Templeton explained.
Fifth, the best way to find bargains is to study the worst performing assets over the past 5 years and then assess whether the cause of these distresses is temporary or permanent.

Chapter 3 Everything Changes

Marks pointed out that investing is all about “predicting the future”. When we analyze any asset, we must consider its future profit and valuation expectations, and we must figure out what the price will be paid today.
In a world where everything is unstable, unreliable, and almost anything can happen, the first principle we should follow is to be realistic about our limitations and vulnerabilities.
Max called the efficient markets hypothesis a “very powerful idea,” but there was still a huge gap between the academic theory and his practice, which has made billions for himself and his clients. He told such a joke: A finance professor and a student were walking on the Chicago campus, and the student suddenly stopped and shouted: “Look, professor, there is a $5 bill on the ground!” The professor replied: “No. Probably a $5 bill, or someone else would have picked it up.” The professor walked away, and the student stooped to pick up the bill and bought a beer. Coincidentally, Max also had a folded $5 bill in his wallet, which he picked up in the Harvard Business School library—a reminder that theories have limits.
Max drew a simple but life-changing lesson from the academic debate: As an investor, if he wanted to add value, he should avoid the most efficient markets and focus only on the less efficient ones. “The more a market is studied, the more attention is paid to it, the more it is accepted, the more it is advertised, the less room there is to bargain in that market,” he said.
Any asset, no matter how ugly, is worth buying if it’s cheap enough. In fact, Max believes that “buying low” is the only surefire path to investment wealth and that “getting high” is the greatest risk, so the most basic question to ask about any potential investment is : “Is it cheap?”
Without the blessing of Lady Luck, Max would never have set foot in these inefficient, cheap markets; without a bright head and an independent mind, he would never have been able to capitalize on the timing of his discoveries. “Look, luck alone isn’t enough,” he said, “but neither is intelligence and hard work, and even grit doesn’t necessarily make it, you need all four. We all know that some people Smart and hard working but they don’t get lucky and it’s heartbreaking. People come to me all the time looking for a job and some of them are 50 and out of work at such an age they should have Career Opportunities.”
But acknowledging good luck has another benefit: It makes him happy. Max said confidently: “I consider myself a lucky person, and I walk around with this incredible feeling. If you’re a negative person, you might say: ‘I’ve been lucky in my life, and it’s really bad because That means my success is misnamed and probably not sustainable.’ But I’ll say, ‘Oh my God, what a wonderful thing to be lucky, I should really be grateful, whether it’s to God or to chance , or something else.'”
“We have two types of forecasters, those who are ignorant and those who don’t know they are ignorant,” Galbraith said.
How did this awareness of his own limitations free Max from unhelpful or harmful activities? First, he wastes no time predicting interest rates, inflation or economic growth, and we should follow his example in this regard. If Max couldn’t predict these things, I’m pretty sure I couldn’t either. Unlike many of its competitors, Oaktree doesn’t even have its own economists, nor does it invite outside “experts” to interpret the macroeconomic situation.
When habitual skepticism caused Max to miss an opportunity, he didn’t care. What he puts more weight on is the “reasonable proposition” that the price of a particular security is less than its intrinsic value. “It’s easy to invest in a dream, the real challenge is how to determine the value of the asset,” he said.
Investors who hope to achieve lasting success should keep this basic idea in mind: buy assets below their value, as we have seen, from Buffett to Pabrai, from Templeton to Max. did so.
When analyzing any asset, Max wants to know “how much optimism is in its price.”
He is a learner investor who never forgets the saying: The prudent rarely err or write great poetry. He’s content with taking it lightly, because it reduces the chances of making catastrophic mistakes. “It’s very important that you do what’s right for you.” When I asked him about the most damaging investing mistake he ever made, he replied, “I don’t Negligence made a small mistake.”
“But when the market is unstable, you don’t have to know what the catalyst is,” Marks said. “You just need to know that there is a vulnerability in the market.”
His detachment and impervious behavior perfectly reflect the lessons he has learned from Buddhism. Remember: “We must adapt to the reality that circumstances have changed.
This is very beneficial. ’ Max told me, ‘See the world as cyclical and oscillating rather than linear. He argues that almost everything is cyclical—e.g., economies expand and contract; consumer spending rises and falls; corporate profitability rises and falls; credit availability rises and falls; asset valuations rise and fall. It goes up, it goes down, etc. Instead of continuing in one direction, all of these tend to reverse. He likens these patterns to the swinging of a pendulum from one end to the other.
The future may be unpredictable, but recurring booms and busts are predictable, and once we recognize this underlying law, we will stop acting blindly.
Forgetting is costly, and one way to curb this tendency is to delve into the history of markets. “You can’t predict the future,” Max said, “but you can know the past, which is very beneficial.”
In 2007, a year before the financial crisis, he wrote a memo he would later be proud of that documented many signs of danger, including the foolish loosening of mortgage standards in the US and UK, unconditional support for unconditional Valuable companies provide financing and are willing to invest in risky bonds without covenant protection. To stand out, he wrote in bold letters: “Era of easing followed by punitive corrections.”
On Sept. 19, he wrote a memo to Oaktree clients asking the unanswerable but obligatory question: “Is the financial system going to collapse? Or is this just the worst cyclical downturn we’ve ever had?” ?My answer is simple: we have no choice but to assume that this is not the end, but the beginning of another cycle that we can take advantage of.” He added, with typically deadpan humor, “Most of the time, the end of the world is not Will appear.”
“I think it can be reduced to, either the end of the world happens or the end of the world doesn’t happen … if it doesn’t happen and we don’t buy assets, then we’re not doing a good job,” he said. “That approach makes things incredibly simple.” gone.”
Max ran back to his office and scribbled out a memo titled “The Limits of Negativism.” Thinking of that meeting, he recognized a fact. For decades, he has warned investors that when optimism reaches its peak, no one believes bad things can happen, and when pessimism reaches its peak, investors act as if “nothing good will ever happen.” When it happens, be skeptical. For the rational skeptic, the point is not to be perpetually pessimistic, but to question what “everyone” believes, whether they are too optimistic or too pessimistic. Explaining his epiphany, he wrote: “When too optimistic, skepticism calls for pessimism; when too pessimistic, it calls for optimism.”
In our conversations and in his writings, Max repeated themes that he had pondered for decades. In my opinion, there are 5 key concepts worth keeping in mind:
• It is important to acknowledge that we cannot predict or control the future.
• Study the patterns of history and use history as a guide when considering what might happen next.
•The cycle must be reversed and reckless excesses must be punished.
• Cyclicality can be exploited through counter-cyclical behaviour.
• In order to achieve long-term success in an uncertain world, it is necessary to maintain a humble, skeptical and cautious attitude.
As Buddhist teachings point out, we need to accept that all phenomena in the world are transient so that we are not surprised or dismayed when things change. “We cannot remain calm if we do not accept the teaching that everything is changing,” Suzuki said.
Whether in the markets or in life, our goal is neither to take reckless risks nor to be blindly risk-averse, but to take risks wisely, while never losing sight of the possibility of bad outcomes.
When preparing for life ahead, he says, “don’t try to be the ultimate, in investing and in life. So ask yourself, have you exceeded your limit?”
This question applies not only to investment, but also to consumption. Marks said: “Financially independent is not about making a lot of money or having a lot of money. Do you know where the money comes from? As long as you spend less than you earn, you can save money and live within your means. Remember, your ability to be anti-fragile Comes from the extent to which you haven’t reached your limit.”

Chapter 4 The Resilient Investor

“Because the future is uncertain, you definitely want to minimize risk.”
Buffett wrote in the preface to the book “The Intelligent Investor”, “A successful investment career does not require superior IQ, extraordinary economic vision or inside information, all it needs is a sound knowledge framework that can help you make decisions , and the ability to avoid emotional disruption of that architecture.”
“Those who are decaying now will regain their brilliance in the future; those who are in the sky now will fall into the abyss in the future.”
Everard’s position is rather embarrassing, which leads to many of his operations not coming from his heart. First, he is controlled by investors. The investor can redeem his money every day, forcing him to sell rather than buy when the price is cheapest. The capricious emotions and erratic judgment of investors became an external threat beyond his control. Second, he was extremely vulnerable to pressure within his own company, including from colleagues, who feared that his refusal to invest in tech stocks would hurt their financial interests. What’s worse, he has to act according to the boss’s wink, and his own words don’t matter.
If our goal is to ensure financial resilience, our best model is Buffett, not Blanche, so we want to make sure that we can do well even when strangers are unkind.
How can individuals reduce vulnerability and increase resilience? We should follow Buffett’s example and always maintain enough cash reserves so that we are not forced to sell stocks (or any other distressed asset) during a downturn. We should never over-leverage because, as Everard warns, debt eats into our “patience.” Like him, we should resist the allure of hot stocks with seemingly bright prospects but no margin of safety, and we should steer clear of companies with weak balance sheets or desperate for outside financing that are likely to disappear in times of trouble.
It’s not as hard as cutting your brains out, but let’s take this oft-forgotten precept seriously: You shouldn’t depend on the kindness of strangers.
In the 1920s, Kahn was a teaching assistant at Columbia University, where Graham worked, and they remained friends for decades. I wonder what he learned from Graham that propelled him to a successful financial career in ’86. Kahn’s answer is: “The most important thing in investing is to preserve strength, not to obtain huge returns. This must be kept in mind. If you only get a reasonable return and suffer the smallest loss, then you will eventually Be rich, and you’ll outrun all the gamblers, and that’s a good way to get rid of insomnia.”
As Kahn said, the secret of investment can be expressed in one word, that is “safety”. The key to making wise investment decisions always starts with asking “how much money I may lose”. He explained: “Considering the downside risk is the most important thing an investor has to do, and it has to be addressed before the return can be considered. The problem now is that people think they are smart and can make quick decisions. Can you Galloping is all right, but are you on the right track? Can you see where you’re going?”
McLennan’s voracious reading led him to the same cautious conclusion as Graham and Everard: that the future was so “uncertain” that investors should focus on avoiding permanent losses and building “capable Portfolios that are exposed to various risks from countries around the world”.
If you want to participate in the journey of human beings, you must first survive adversity. “This is a mantra that needs to be kept in mind both in investing and in life.
He was also able to “buy hard-hit stocks at more reasonable prices now” when others panicked. “It’s not enough to be conservative, you also have to be willing to act when others think it’s the worst fit,” he said.
In the markets, as in life, success or failure depends largely on our ability to survive the lows.
McLennan spent 14 years at Goldman Sachs and worked with some of the highest performers on Wall Street. He wondered at first whether these people had some unique talent that was different from others. “As time goes by, I have gradually discovered that they don’t give up their principles, keep learning, keep improving, persevere, and have a strong desire to survive in adversity.” He saw the commonality of the best investors, “No Give up and keep acquiring new knowledge”, and can “survive the trough period”.
We now try to glean some practical lessons from Graham, Kahn, Buffett, Everard, and McLennan on how to build investor resilience. In my opinion, we should bear in mind the following 5 basic rules.
First, we must respect uncertainty. Think of the ups and downs that Graham and Kahn have been through for the past century or so, and you realize that disorder, chaos, turmoil, and surprise are not flaws of the system, but properties of the system. We cannot predict the timing, triggers, or exact nature of these disruptions, but it is important to recognize that they may arise and prepare for them to mitigate the harm they will cause if they do occur. how to do it Acknowledge our vulnerabilities and consciously eliminate (or reduce) them. As Nassim Nicholas Taleb writes in Antifragile: Gaining from Uncertainty, “Finding out what is fragile is much easier than predicting whether an event that hurts it will It’s much easier to happen.”
Second, being resilient requires reducing or eliminating debt, avoiding leverage, and guarding against excessive spending that can make us dependent on the kindness of strangers. Ask yourself these two key questions: “Where am I vulnerable? How can I reduce my vulnerability?” For example, if you put all your money in one bank, one brokerage, one country, one currency, In an asset class or a fund, you are playing with a loaded gun. When you’re lucky, you may make a lot of money in the short term, but, over time, your vulnerability will be exposed when the unexpected happens.
Third, instead of focusing on short-term gains or outperforming benchmarks, we should focus on resisting shocks, avoiding bankruptcy, and ensuring survival. To some extent, the benefits come naturally as economic growth, productivity gains, population expansion, and compound interest kick in, but as Kahn warns, we cannot ignore the downside.
Fourth, beware of overconfidence and complacency. Aristotle once pointed out that “many people with money are stupid”. Personally, I am convinced that I am an irrational, ignorant, self-deceived individual, and while I often laugh at people who misbehave, I am also prone to the same mistakes, including the dangerous tendency to believe that the future resembles the recent past. Habit.
Fifth, as informed realists, we should be acutely aware of the risks we face and should always obtain a margin of safety. But pay special attention to this point: we must not become panic, pessimism or paranoia under the influence of risk awareness. Nietzsche warned, “Look too long into the abyss and you will become the abyss”. As McLennan has shown during this pandemic, resilient investors have the strength and confidence to seize opportunities, while unconfident investors will miss out. Defense suddenly becomes offense, chaos brings profit.

Chapter 5 The highest level of complexity is simplicity

Buffett himself is a master of simplification. In his 1977 letter to shareholders, he proposed four criteria for stock selection. He wrote: “We want businesses that are: (1) in an industry we can understand, (2) competitive in the long run, (3) run by talented people, and (4) attractively priced. .” You may not think there is anything to these criteria, but it may be difficult to come up with more reasonable stock selection criteria than these few.
We all know that it is very difficult to outperform the market when you run a large fund, but when we met in 2017, Dannov managed to do just that. Looking at the 1-year, 3-year, 5-year, 10-year and 27-year data, his funds outperformed the S&P 500. I was eager to reveal the secret of his success, but he summed up his investment philosophy in just a few words, that is, “stocks follow returns.”
Under the guidance of this principle, he spared no effort to find “the best enterprise that will develop and grow within 5 years”. Why? Because he believes that if a company’s earnings per share can double in the next 5 years, then its stock price may also double (double or multiple). It’s easy to overlook this concept because it sounds simplistic, but remember: Investing is not like Olympic diving, where judges award points for difficult movements.
Each of us needs a simple, consistent, long-term effective investment strategy, an investment strategy that we fully understand and firmly believe that we will stick to it in good times and bad.
The average investor invests in index funds based on this frustrating but realistic philosophy: If you can’t beat the market, then you should focus on getting a corresponding return at the lowest possible cost. For the vast majority of investors, investing in indexed products is undoubtedly the most reasonable and simplest strategy.
As Greenblatt says, “Stocks represent ownership of a business that you are evaluating and trying to buy at a discount,” the key, then, is to identify situations where there is a huge gap between price and business value. This spread gives you a margin of safety, which Greenblatt (like Graham and Buffett) believes is the most important concept in investing.
Once you realize that your mission is to value a business and buy its stock for far less than it is worth, you will be relieved. Greenblatt said: “If you can look at investing this simply, and keep it that simple, then you’ll find the idea very appealing and you’ll find other ideas stupid. In its impact Next, I threw out 99% of what I was told about how to look at the world and the market.”
Greenblatt uses four valuation methods according to the specific circumstances of different companies: 1. Perform discounted cash flow analysis to calculate the net present value of the company’s future earnings valuation; 2. Compare the company’s value with that of similar companies , to assess its relative value; 3. Estimate the acquisition value of the company, calculating the price that an informed buyer may pay; 4. Calculate the liquidation value of the company, that is, analyze the value of the company when it goes bankrupt and liquidates.
This leads to a fundamental truth that is regarded as the most reliable law in the financial world: in the short run, the market is irrational, often causing stocks to be mispriced, but in the long run, the market is abnormally rational. “In the end, Mr. Market will get it right,” Greenblatt said.
As Ben Graham taught, the most important thing in investing is a margin of safety. If you bought a stock at a significant discount to its intrinsic value, sooner or later other investors will find out and they will end up pushing the stock price higher. At the same time, Greenblatt said, “I don’t see how I’m going to lose a lot of money,” which is why he made the bold bet. He said: “The position should be determined according to the amount of risk to take. I don’t add to the stocks that make the most money, but the stocks that will not make me lose money.”
Greenblatt’s approach to investing continued to refine, in part because he saw Buffett tweak and refine Graham’s strategy for buying penny stocks. As Greenblatt explains, Buffett made “simple little improvements” that “made him one of the richest men in the world: buying cheap stocks is great, but buying cheap great stocks business, that’s even better.”
These self-defeating moves underscore the thorniest challenge every investor can face. It’s not enough to find a smart strategy that improves your long-term odds of winning; you also have to apply that strategy rigorously and consistently, especially when you’re feeling extremely uncomfortable.
The data led him to an important implication: “The best strategy for most people is not the one that yields the highest returns.” A good strategy to stick to.”
It’s an astonishing evolution for a famous investor who earned 40% annual returns using a concentrated investing approach over a 20-year period, but the fact that it’s also a reminder that most investors should be committed to Earn solid and sustainable returns, not brute force. “It’s not uncommon for me to lose 20% or 30% in just a few days every two or three years when I own six to eight stocks,” Greenblatt said. It’s a tough strategy to stick with, and for most individual investors, “It’s not a good bet, but it’s good for me, and I don’t freak out when a stock goes down 20% or 30%, because I know What do I own”.
Executing a complex strategy involving hundreds of long and short positions is no easy feat, and Greenblatt assembled a 20-person team of financial analysts and technical experts to help him make it happen. However, the principles underlying its strategy have always been simple yet powerful, and should all of us be mindful of them, and they are:

Stocks represent ownership of a business, and the business must be valued.
Stocks should only be bought if they are trading below their value.
In the long run, the market is rational and it will (more or less) reflect the fair value of the business.
The problem is, no one knows how long it will take for the market to reflect fair value, whether it will be weeks, months or years, but Greenblatt is willing to wait because he believes the principles are solid. “If stocks represent ownership in businesses, and I’m good at valuing them, I’ll do well, at least in general, over time,” he said. Like the law of gravity, the laws of economics don’t disappear.”

When I think about what I have learned from Greenblatt, 4 simple revelations spring to mind. One, you don’t need the best strategy, you just need a smart strategy that will achieve your financial goals. As General Carl von Clausewitz, a Prussian military strategist, said, “The pursuit of perfection is the greatest enemy of a good plan”.
Second, the strategy should be so simple and sound that you can understand it, you believe in its core, and you can stick to it even in difficult times, when it doesn’t seem to be working anymore. It also has to fit your tolerance for pain, volatility and loss. It is good practice to write out the strategy, the principles on which it is based and why you think it will work in the future. Think of it as a statement of policy or a code of financial conduct that you can use in times of stress and confusion. When you want to gain a sense of mental balance and direction, you can look at it.
Third, ask yourself whether you really have the ability and characteristics to beat the market. Greenblatt’s unusual traits give him a distinct advantage: He has the analytical skills to deconstruct a complex game into its most fundamental principles: Value businesses, buy at a discount, and wait. He knows how to value a business. He is not influenced by conventional wisdom or pundits, such as Wharton professors preaching efficient markets, and instead enjoys proving them wrong time and time again. In addition, he is patient, even-tempered, confident, competent, rational, and self-disciplined.
Fourth, remember this: You don’t have to beat the market to be a rich, successful investor. Over the decades, John Bogle has watched thousands of fund managers try and fail to demonstrate that they outperformed index funds over the long term. He told me: “It turns out that these so-called ‘stars’ are ‘comets’ that light up the night sky for a moment, but burn out quickly, and their ashes fall softly to the ground. .Believe me, that sort of thing happens almost all the time.”
According to Borg, the “easiest thing to do” is to buy and hold a well-balanced index fund that holds a fixed proportion of domestic and foreign stocks and bonds. That’s it, no more trying to time the market or picking the next hot stock or fund.

Chapter 6 Nick and Zack’s Wonderful Adventures

The real machine you are up against is yourself. Your inner and outer are not separate, they can get closer or farther away from high quality.
In Zakaria’s view, irrationality, a disregard for the facts and a willingness to make a quick buck at any cost regardless of who gets hurt has led to this outcome.
“There is no other way to be smart, just learn to ignore some things.”
For example, they wonder, can the company improve its relationship with customers by offering high-quality products, low prices, and efficient service? Is the CEO properly allocating capital to increase the long-term value of the company? Whether the company underpaid its employees, abused its suppliers, broke the trust of its customers, or engaged in any other short-sighted behavior that could jeopardize its ultimate success
Sleep and Zakaria are appalled by this shift toward short-termism. “We’ve spent our lives wondering why investors are changing their shares every few months, and what good is that doing for society as a whole?” Sleep wrote. The basic structure will be broken.” Nomads will succeed in very different ways. “The Bible says, you want to build your house on rock, not sand, and you want to build a house that lasts and lasts,” Sleep said.
Given the opportunities at the time, it makes sense for nomads to invest in businesses that are selling cheap, but there is a flaw in this strategy: When the prices of such stocks rebound and they are no longer cheap, they have to sell them and sell them. Find new bargains. But what if there are no particularly suitable businesses for sale when they try to reallocate capital? An obvious solution to this reinvestment risk is to buy and hold for a long time in stocks of high-quality businesses that are more likely to be consistently profitable for many years to come.
Sleep and Zakaria began looking for other businesses run by visionary managers who they believed could build wealth over time by owning shares in them. “If managers can think rationally and take a long-term view, you can leave capital allocation decisions to them and you don’t have to buy and sell stocks yourself,” says Sleep. Finally, they came to a very enlightening conclusion: there is one business model that may be more powerful than others, and they call it shared economies of scale (scale economies shared).
The culture of such companies is often shaped by visionary founders rather than employees, and they tend to value small details, improved customer experience, and cost reduction in good times, and, even in the face of strong data today. external pressures, they also invest in the distant future. “They’re all very iconoclastic,” says Sleep. Legends include Walmart’s Sam Walton, Market Opener’s Jim Sinegal, Southwest Airlines’ Herb Kelleher (Herb Kelleher) and Rose Blumkin of Nebraska Furniture Mart. Bloomkin is a Russian immigrant who has been working since she was 6 years old until her 100th birthday. She faithfully followed three principles: “cheap, tell the truth, and don’t deceive anyone”, and single-handedly built the largest household goods company.
“Passing the benefits of efficiency gains and economies of scale back to customers in the form of lower prices creates a virtuous cycle that leads to more free cash flow in the long run.”
In my opinion, there are 5 lessons we can learn from the experience of Sleep and Zakaria.
First, their experiences teach us what it means to have quality as our guiding principle in business, investing, and life. This is their philosophy of morality and wisdom inspired by Zen and the Art of Motorcycle Maintenance. It’s easy to think of “quality” as a vague and subjective concept, but it provides an extremely useful filter for many decisions. For example, Sleep and Zakaria apparently believe that charging just enough nomads for an annual management fee to keep them in business is a higher-quality option that will make them rich regardless of their performance.
Second, we must bear in mind this idea: pay attention to the factors with a long shelf life, and don’t pay too much attention to the factors that are short-lived. They apply this principle when selecting information, and they apply this principle when selecting companies to invest in.
Third, we can recognize that this particular business model of shared economies of scale creates a virtuous cycle that creates sustainable wealth over the long run. Using this insight, Sleep and Zakaria have made huge profits by focusing on high-quality businesses that employ a similar model. Paradoxically, they also argue that owning a small number of stocks (usually around 10) is less risky than owning hundreds of stocks—diversification is the standard strategy and is bound to lead to mediocre returns. “We know that there are a lot of things we don’t understand,” says Sleep, “so it makes sense for us to only own certain companies because we really understand them.”
It’s no surprise that the businesses they know and love best are Amazon, Market Opener, and Berkshire. These companies have shown extraordinary resilience even as the new crown epidemic turned the world upside down. After all, their economies of scale allow them to provide superior value to their customers. “Amazon and Kaishike, in particular, saw their business volume increase during the crisis. In general, the greater the impact of the environment on the economy, the greater the cost advantage of these enterprises.”
Fourth, even in a capitalist enterprise where selfishness is the norm and greed is inherent, there is no need to behave immorally or recklessly in order to achieve spectacular success. During the financial crisis, Sleep wrote about the damaging effects of a “gamer will do whatever it takes to win” culture, and he and Zakaria wanted the Nomads to embody a more enlightened capitalist culture.
This explains why they implement fee schemes that benefit shareholders rather than themselves. They are also generous to each other, for example, Zakaria insisted that Slip should own 51% of the investment company’s shares, not the same as himself; when disagreements arise, Zakaria trusts Slip to make the final decision . Abusing a partner who “throws a loaded revolver across the table and says, ‘Come on, you can shoot me if you want!'” was unthinkable, Sleep said. “We have a very good relationship and it’s been important to our success,” he added, noting that they still share an office years after closing the fund. As Sleep said, “Good behavior has a long shelf life.”
The great emphasis on charity is also a distinctive feature of their moderate capitalist culture. “The moment we confirmed we wanted to run the Nomads Fund, we both knew it was our job to give money back to society,” says Sleep. The risk of restlessness.” He added: “Scattering money also makes people happy.”
Zakaria and his wife Maureen funded a range of charities geared towards scientific and medical research, including the London Mathematical Laboratory, the Royal Society and the Royal Hospital for Neurological Disabilities. And Sleep spends most of his time helping a charity called Outlying Youth Communities, which provides a safe haven for children in deprived areas to improve their social skills and learn new skills. He said his and Zakaria’s core work has shifted to “doing our best to do the good that is most meaningful in the long run.”
Sleep hasn’t given up all worldly pleasures. He loved racing and sometimes raced in a 1965 Shelby Mustang GT350 and a 1967 LoRa T70. He also took turns driving a 1964 Mercedes Pagoda with his daughter Jesse in a 36-day rally from Beijing to Paris (via Mongolia and Siberia).
Fifth, in a world of growing short-termism and instant gratification, those who consistently move in the opposite direction have a huge advantage. This applies not only to business and investing, but to relationships, health, career, and everything else that matters.

Chapter 7 High Performance Habits

All of this points to an important conclusion that applies to investing as much as to life, which is that big wins are often the result of continuous small improvements and improvements over time. “The secret to success is that each day is a little bit better than the day before,” Gaynor said. “You can do it differently, but that’s the way it is… Continuous improvement is the key.”
First, he is looking for a “profitable business with a high return on capital and low leverage”; second, the management team of the business must be “combined with integrity and competence”; and third, the company should have ample opportunity to reinvest profits And get a decent return; Fourth, the stock price is “reasonable”.
Before making any investment, he asks himself this critical question: “What if I’m wrong?” Then he weighs his bets so that whatever happens, the outcome isn’t catastrophic. “Don’t make the fatal mistake,” Gundlach told me, “it’s the foundation of longevity, and at the end of the day, longevity is the key to success in business.
Gaynor’s experience shows that you don’t need to be extreme to achieve extraordinary results in the long run. “Going to the extreme will get you into trouble,” he said. He pursued a path of gentleness, one that has been endorsed by some of history’s wisest thinkers, such as Confucius, Aristotle, Buddha, and Maimoneans Tis.
Some 2,400 years ago, the ancient Greek philosopher Aristotle argued that superior and lasting happiness depends on our ability to practice the “golden mean”—that when it comes to physical enjoyments such as food, wine, and sex, we should be within Find a balance between overindulgence and abstinence. Likewise, in the face of risk, he advises caution between the two opposing extremes of cowardice and recklessness, saying: “A coward is a man who runs away from everything, fears everything, and takes no firm stand on anything. He who meets all dangers is a fool.”
His “satisfactory, slow, steady” method of accumulating wealth was based largely on common sense and carefully cultivated habits rather than on esoteric skill or daring risk. When I asked him what the average investor should do to get rich, he gave the most uninspiring piece of advice: “Spend less than you earn, invest what you have left, and get a positive return. Doing both You can’t fail.” He added: “If you earn more and spend less, you’ll get rich in no time.”
“You can’t control the outcome, you can only control your hard work and dedication, and no matter what happens, give your all to the task at hand,” Gaynor said.
Individually, none of these moves is earth-shattering, but remember: small things add up, and their compound effect is huge. Plus, the small benefits of wise habits accrue over the years. In the short term, these small improvements may seem insignificant, but time is the enemy of bad habits and the friend of good ones, and the cumulative effect year after year and decade after decade is amazing. In fact, it’s this one important quality about Gaynor that makes him stand out: persistence, consistency.
The good thing is that we don’t need to learn any secrets, we don’t need a high IQ, what we need is to develop a smart habit that allows us to accumulate small advantages, in the right direction and sustainable. Gaynor set us on the right track, so let’s see what other highly effective habits great investors employ to maintain their long-term advantage.
When Bill Miller first entered the industry, he asked Lynch for advice, and Lynch told him that the return on the investment industry is very rich, no matter from the economic level or the intellectual level, so it has attracted too many smart people to enter. “The only way to beat them is to work harder than them,” Lynch said, “because you’re not much smarter than anybody else.” Office, working after dinner and on weekends, not taking vacations for many years, reading more investment research reports. When Miller asked if Lynch slowed down as he got older, Lynch replied, “No, in this business, there are only two gears, overdrive and park. Miller agreed, saying, “That’s basically true, you’ve got to hit full steam ahead.”
All the investors mentioned in this chapter share a common habit: They focus almost exclusively on what they do best and what matters most to them. Their success stems from their adherence to this principle: focus on a relatively narrow field, ignoring countless factors that interfere with their pursuit of excellence.
Thousands of years ago, Lao Tzu, the founder of the Taoist school, said that the path to wisdom involves “subtracting” all unnecessary activities. It must be continuously increased, but seeking the Tao must be continuously reduced).”
The art of subtraction is extremely important, especially in the era of information overload, our thinking can easily become fragmented. Left unchecked, political news, social media notifications, robocalls, and other disruptive noise can enter your head.
The more distracted other people are, the greater the advantage you gain from cutting out mental confusion, technological distractions, and overstimulation.

Chapter Eight Don’t Do Stupid Things

Even so, I prepared well in advance for our short exchange. As I pored over his speeches, writings, and other reflections over the decades, I came to realize that Munger’s consistent approach was to demean himself for “thinking stupidly,” “doing stupidly,” “making unoriginal mistakes.” ’ and the probability of ‘doing common folly’, all of us should emulate him.
Munger’s method of solving problems backwards was influenced by Carl Gustav Jacobi, a 19th-century mathematician who famously said “Think backwards, you must think backwards”, but Munger told me that with the help of his friend Garrett Hardin, he developed the mental habit of thinking backwards. Harding is an ecologist who has studied the dire consequences of bad thinking. Munger said: “Harding’s basic idea is that when someone asks you how you can help India, you just say, ‘What would you do to destroy India?’ And then you figure out what you can do, and then you go backwards and say , ‘Right now, I wouldn’t do that.’ It’s counterintuitive, but it does help you solve the problem in a more thoughtful way.”
Tillinghast is a shy and timid math genius who currently manages more than $40 billion in assets. He developed a large number of defensive principles and practiced them, and the performance surpassed almost all competitors. First of all, he said, “Don’t pay too high a price, don’t choose companies that are easy to be eliminated and hit, don’t invest with liars and idiots, and don’t invest in areas you don’t understand.”
Most of us don’t like to talk about our mistakes in public, and we don’t want to admit them, but in Munger’s view, the more open and transparent he is about his mistakes, the less likely he is to repeat them. He once told Berkshire shareholders: “I like when people admit that they are complete idiots. I know that if I can face up to my mistakes, I will perform better. It is a great learning technique. “In fact, it’s the third tip we all have to learn from him to prevent stupidity in the workplace.
These typical market follies reinforce Martin’s lesson in the Navy: Nothing is more important than avoiding catastrophic mistakes. Over the ensuing decades, he observed this pattern time and time again: carelessness invites unnecessary disaster.
His “golden rule of risk management” is simple, “know what you have”.
Martin co-authored “Benjamin Graham and the Power of Growth Stocks,” in which he cautioned investors: “You can screw up investing. The problem is , can you recover quickly?” “Graham’s margin of safety concept helps you ‘control’ your mistakes so that you don’t make too many mistakes and you recover quickly.”
Martin would only buy a stock if it was cheap enough and expected to deliver high returns over the next seven years. He set a minimum rate of return of 12% for mid-cap stocks and 15% for riskier small-cap stocks. Why do you want to do this? Only with these standardized requirements set would he systematically buy stocks when they were cheap enough. As Martin learned in the Navy, “following the routine” is essential: “Always respect it, because it keeps you out of trouble.” Adopting standard practices and strict adherence to the rules is what keeps us from fooling around The fourth technique. Buffett and Munger may not need formal standards or rules to bind themselves, but you and I are not them.
Munger sorted out the “standard thinking mistakes”, which provided him and us with a practical list of thinking traps. “The thing to watch out for is to first understand them and then train yourself to get rid of them,” says Sleep. “It’s easier said than done. It’s hard work. But it’s necessary because people” The most enduring advantage is a psychological advantage.”
Munger used a vivid analogy when he said: “When a sperm enters the egg, the egg automatically activates the shut-off mechanism to prevent other sperm from entering. The human mind has this tendency.” Reluctant to re-examine our views and Changing our thinking is the biggest obstacle to rational thinking. Our minds are not open enough, and we consciously or unconsciously prioritize information that reinforces our beliefs.
The error of blindly clinging to established beliefs can be exacerbated by several other psychological tendencies: the tendency to think too highly of ourselves causes us to overestimate our talents, opinions, and decisions; When things are going well and we feel smart; the simple, pain-avoiding psychological denial that leads us to distort reality when “reality is too painful to bear” all help explain why so many investors delude themselves into thinking that , even though they lack the necessary skills, literacy, or cost control, they can outperform index funds in the long run. Munger likes to quote the ancient Greek orator Demosthenes: “There is nothing so easy as self-deception. Man always believes what he wants to believe.” When the human brain plays tricks, how do we How can we make rational investment decisions? First of all, we have to admit that this hidden threat exists. As Graham said, “An investor’s main problem, and even his worst enemy, may very well be himself.”
We also need to be wary of our own unique psychological tendencies that can skew our judgment in predictable directions. Howard Marks, who worries about this, told me: “When your mind is preoccupied with wishful thinking, your judgment is biased toward those thoughts… When you are fearful, you tend to make negative judgments… …nobody says, ‘This is my prediction, it could be wrong’, but you have to say to yourself, ‘This is what I’m looking for in my heart, and I have to be aware that it might be influenced by my emotional bias’, You have to resist it. For me, that means I can’t back down when things get tough.”
Like Munger, Shubin Stein advocated the “scientific method” of investment analysis. This means having a “proof-by-proof mindset” and trying to “disprove” your hypothesis to see if “it stands up to attack.” One of Shubin Stein’s favorite questions is: “Why might I be wrong?”
The scientific literature shows that hunger, anger, loneliness, tiredness, pain, and stress are common “poor decision-making factors,” so Shubin Stein used the acronym “HALT-PS” for these factors to remind himself: When When they might cloud his judgment, he pauses, putting off important decisions until his brain returns to normal. This is our seventh tip for avoiding stupid things.
“We know that there are four behaviors that promote brain health and enhance brain function,” Shubin Stein said. “They are meditation, exercise, sleep, and nutritional supplementation.” Made him sleep more soundly. He ate more fish, vegetables and fruit and gave up his “worst tendencies”, including a habit of binge eating vanilla ice cream and smashed chocolate chip cookies. He also developed a habit of regular meditation, which is vital to many successful investors.

epilogue beyond wealth

Thorp was originally a mathematics professor with a meager income, and then entered the investment industry. He enjoys the luxury that investment success brings him. When I asked him if he had a favorite item, he smiled and replied, “I really like my Tesla, it’s so fun, it’s the best car.” , when he has more money, more houses, more cars, more everything, he will be happier. “Who you spend time with is probably the most important thing in life,” said Thorpe, who remarried after his first wife died after 55 years of their marriage. “People who have been accumulating wealth don’t understand this, they end up with a lot of things, but they spend their lives chasing them.”
Miller’s story taught me two valuable lessons.
First, everyone suffers. When I’m in pain, it’s comforting to think that Miller, Karp, Pabrai, and every other rich or famous person I’ve interviewed has been through it. Remember what Philo of Alexandria said: “Be kind, for everyone you meet is going through some kind of pain.” No one is smooth sailing, and sometimes we need help from philosophy, spirituality, family, friends, or Look anywhere else for support. If we try to escape mental suffering with wealth, we are bound to be disappointed.
Second, perseverance is a noble virtue. I wrote Pabrai a few years ago in the throes of pain as he was facing enormous challenges on multiple fronts, including the bankruptcy of his largest holding, Horsehead Holdings. He replied: “Marcus Aurelius is my hero. We don’t know when disaster will come, but it is good to face adversity and it will make us stronger.” Pabrai’s invincible optimism Spirituality reminds me of a line in Meditations: “When something pains you, remember this principle: The thing itself is not bad luck; it is a blessing to suffer and overcome it.
For years, he had pondered these questions: Why did the girl in Amsterdam save him, and how would she be “willing to sacrifice her life” to save a “stranger”? How could her parents allow her to do such a dangerous thing? Vandenberg’s psychiatrist told him: “It’s simple. When your life is more important than your principles, you sacrifice your principles; and when your principles are more important than your life, you sacrifice Your life.” Vandenberg said the insight “had a profound impact on me.”

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