Warren Buffett

Buffett and Munger—A Study in Simplicity and Uncommon, Common Sense – Peter Bevelin

PART ONE: ON FATAL MISTAKES, PREVENTION AND SIMPLICITY

Mistakes are a fact of life

Don’t bother about mistakes that don’t actually matter

Avoiding problems is better than being forced to solve them

• Prevention is primarily about avoiding ruin (p. 4)
  • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
• Relate what you are reading to the basics (p. 5)
  • 2-1a0a ‘Occam’s razor’ & ‘Irreducibility’ - Simplify the problem but don’t oversimplify.
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
  • RUL3 - Ask at night how what you’ve learned that day fits into your web of ideas, and search for overlaps and contradictions. Most people do not do this.

If we understand what works and not, we know what to do

• Repeat what works (p. 7)
  • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.

It is better to try to be consistently not stupid than to be very intelligent

• Independent thinking over imitation (p. 9)
  • 9-1b0 Knowledge (both explicit and inexplicit) is created individually. You don’t say “I took it from him.” You can’t blame “he took it from me.”
  • 10-2g1f Imitation = limitation (imitation has limitation)

If we know what doesn’t work we don’t go there

• On inversion (p. 10)
  • RUL3 - Invert, always invert
• There’s never a shortage of human folly (p. 11)
  • Personal thought: you will find more new errors and you will increasingly get better at finding them
    • These follies are usually cross boundaries—relatively easy to be missedrevisit
    • Buffett and Munger meets Paul Graham
      • 1-1c6a1b Your ability to detect surprises will get better, and you will never be short of them
      • 5-1b1b1a1.1 The more anomalies you’ve seen, the more easily you’ll detect new ones. Life should become more and more surprising as you grow older. It compounds.
• Grand chess masters operate by exclusion, not by speed (p. 12)
  • Relate with Rockefeller’s emphasis on quality of information over speedrevisit

Thinking backwards is a great tool for solving problems

Keep it simple and make it easy for yourself

• Francois de La Rochefoucauld: “The desire to appear clever often prevents one from being so” (p. 14)
  • 2-1a0c1d1 Focus on the few variables
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
  • 3-1c3c6 Nerds have an advantage in doing great work because they expend little effort on seeming anything
• Samuel Johnson: “I can give you an argument, but I can’t give you an understanding” (p. 15)

The secret is ignorance removal

• On ignorance removal
  • We will be always ignorant (i.e., anti-rational)
    • 1-2 We are fallible
    • 1-2g2t3d2 Knowledge-creation must also imply access to previously inaccessible universes, owning to its unlimited improvability (kaleidoscopic worldview)
    • 10-2g3e We are, and will be, transitioning from anti-rational memes to rational memes

PART TWO: ON WHAT DOESN’T WORK AND WHAT DOES

Find and marry a lousy person

• On having low expectations (p. 17)
  • 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.
• Nothing is objectively and independently good for us—it is just better in light of something else (p. 18)
  • 2-1a1a3d ‘Relative satisfaction (or misery) tendencies’ - Your average five is important, and you can spend time with the best of the best with internet
  • 12-1e Nothing is necessary = Everything is contingent
  • 12-1e4 Nothing is objectively and independently good

Turn your body and mind into a wreck

• Overfear and overavoidance of addiction can never hurt you (p. 19)
  • RUL3 - Make a conscious effort to avoid addictions. Ask “is this how I want to be spending my time”

Only learn from your own terrible experiences

• Study history. Buffett likes financial history. (pp. 19-20)
  • 4-1a4b2b1 ‘One-of-those’ over one-off - Learn from history (not just from your ‘own’ experience)

Use a hammer as your only tool and approach every complex problem as if it was a nail

• If you define all problems as a nail, you’ll only look for a hammer (p. 21)
  • 3-1a3 Multidisciplinary thinking is the most realistic thinking
• Having all the tools is the antidote for being a-man-with-a-hammer syndrome (p. 21)
  • 3-1d4b Your tools-frameworks-systems must be error-correctable (i.e., digital)
• Ask why. Use Occam’s razor. (p. 23)
  • 2-1a0a ‘Occam’s razor’ & ‘Irreducibility’ - Simplify the problem but don’t oversimplify.
    • 2-1a6c1 ‘Tendency to minimize energy output’ - Align your incentives properly, then (almost) everything will follow
    • 3-1c2e0 There is no minimum idea
• Einstein’s razor and Munger’s razor. (p. 24)revisit 
  • Einstein: “Simplify to the essence of the matter, but not further”
  • Buffett: “If I call Charlie and describe a problem, he gets to the essence of it immediately”
  • Douglas Hofstadter: “Being able to reliably ‘sniff’ what counts in a complex situation and to reliably put one’s finger on it (and, conversely, to ignore what doesn’t count) is the trick of thinking well”
• Get the key few factors right (p. 24)
• On backups (redundancy), breakpoints (weakest links), and critical mass (the more is different) (p. 25)
  • 2-1b2g ‘Margin of safety’ - Be redundant and resourceful
  • 2-2b ‘Critical mass’ & ‘Activation energy’ & ‘Alloying’ & ‘Catalysts’ - Look for, or create, lollapalooza effects
    • 11-3.4a More is different
  • 6-8 Train your weakest link
• The Golden Rule—good behavior by each party begets good behavior in return (p. 26)
  • 2-1a1a3a You’re the average of your five closest friends OR You’re the average of the people whose content you consume the most
• Lord Peter Wimsey: “I always have a quotation for everything—it saves original thinking” (p. 26)
  • 6-3b2d1 Don’t reinvent the wheel. Copy and paste. Save keystrokes.
• Patience and slight difference in returns make for the huge difference when compounded, so get both (p. 27)
  • 2-1a1a4b Compounding is usually too slow to notice, making it easier to discount both how much progress and catastrophe are achievable
  • 5-1b4b1 Life’s evolution’s superpower is its time horizon. 3.8 billion years of miniscule changes compounded.
    • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
• Rousseau on wisdom: “Real wisdom is not the knowledge of everything, but the knowledge of which things in life are necessary, which are less necessary, and which are completely unnecessary to know” (p. 28)
  • Also see Sherlock Holmes
  • 2-1a0c1d1 Focus on the few variables
• George Santayana: “To understand is to know what to do” (p. 28)
  • 10-2g3d Behaviors can be replicators even when its meanings are not (properly) understood, because we can guess the meaning of memes. For rational memes, knowledge is THE replicator.revisit
  • 13-2.2 Most “actions” are mere behavior
  • 13-2.3 Learning is about changing your behavior
• Wisdom is about how to use knowledge (p. 28)
  • Naval on what is wisdom: “Understanding the long-term consequences of your actions.”
• Munger on extreme success (p. 29)
  • Focus on few variables, non-linear returns, extreme performance, big wave
    • When you are focused on few variables you are less constrained by norms, and you might create new game wherein it’s relatively easy to achieve extreme performance
      • Do this in new tech space—big wave means the frontier
        • See Marc Andreessenrevisit
        • 7-1b4 You can solve problems that just became solvable
      • QUE5 - What are people in your field religious about, in the sense of being too attached to some principle that might not be as self-evident as they think. What becomes possible if you discard it.
• On bad Lollapalooza (p. 29)
  • 2-2c ‘Tragedy of the commons’ - Also look for negative lollapalooza effects (‘devolution’)
• On halo effect, and on basic need to be liked (p. 30)
  • 3-1c3c4 ‘Tendency to distort due to liking or disliking’ - Never be ashamed of citing a bad author if the line is good.
  • 3-1c3c6 Nerds have an advantage in doing great work because they expend little effort on seeming anything
• On using two-track analysis: rationality and subconscious—“There’s always a motive.” (p. 31)
  • 1-1c2a There is no escape we are and will be shaped by anti-rational memes
• CEOs and the directors dysfunction as corrective mechanism (p. 32)
  • 2-1a1a2 ‘Bias from incentives’ - Explicate your culture-incentive as much as possible
  • 2-6 You get what you pay for
  • 3-1c3c4 ‘Tendency to distort due to liking or disliking’ - Never be ashamed of citing a bad author if the line is good.
• Owner-capitalism engenders true independence (win and win big, lose and lose big) (p. 33)
  • 6-3b4d Community first, monetization later; morality first, money second; missionary over mercenary
  • Relate with other memos on the control structure (e.g., Buffett p. 40, The Outsiders p. 178 and p. 194)
• Three qualities Buffett values (p. 34)revisit
  • What are those?
• Coach’s incentive to get rid of a mediocre NFL QB ≠ Board’s incentive to get rid of a mediocre S&P 500 CEO (p. 35)
• Be careful whom you appoint to power. The CEO does what he wants to do. Board setting strategy etc is baloney. (p. 35)
• It’s practically useless to give advice to anyone (p. 35)
  • 9-1b You can’t really transfer your knowledge to others, because each knowledge has to be created individually
• Be in with a management you are simpatico with (p. 36)
  • 6-3b4d Community first, monetization later; morality first, money second; missionary over mercenary
  • Think about the implication for activists
• The more basic knowledge you have the less new knowledge you have to get. You just have to know a few things and know them very well. (p. 36)
  • 2-1a0c1d1 Focus on the few variables
  • 3-1a3 Multidisciplinary thinking is the most realistic thinking
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
  • 5-1b1b1a1a Pareto principle (or law of the vital few) - 80% of the effects come from 20% of the causes
• Understand human behavior if you’re going to run a business (p. 36)
• You must continuously practice a multidisciplinary approach until fluent (p. 37)
  • 2-1a0c1b You do not rise to the level of your goals. You fall to the level of your systems.
  • 5-1b4b2 Hanlon’s razor applied - See things as results of habits
  • 5-2b0 You are what you do repeatedly
• The will to prepare >>> The will to win (p. 37)
  • 5-1b1 Invest in preparedness. Be redundant and resourceful in every aspect. Minimize opportunity cost to achieve great things.
• Building arks >>> Predicting rain (p. 37)
  • 1-1a5b3.1 What counts is the payoff from success—and not how often you are right
    • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost

Go through life with unreasonable expectations

• Masterplan implies expectations (p. 37)
  • 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.

Only take care of your own interest

• The Golden Rule >>> Self-serving bias (p. 38)
• Munger indirectly preaching the importance of having win-win relationships (p. 38)
  • 2-1c3 ‘Win and help win’ always outcompete
  • Not every win-win relationship materialize instantly—it might take some timerevisit
    • 2-1b2 Play in different time horizon. That is, in the long-run.
    • 2-1b2b0 Judgment is knowing the long-term consequences of your actions
    • 2-1b2d ‘Trust’ - The most effective business is one with trust. Build one.
    • 5-1b4 Be prepared to deal with short-term nonsenses, but know what you’re focused on in the long-run and stay optimistic
    • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run
    • 13-1a3a1a Everyone benefits a psychic profit at the time of exchange (ex ante), but not everyone will benefit from the exchange (ex post)revisit

Blindly trust and follow the recommendations of advisors and salesmen

• Ask: who invented xxx?; who is pushing xxx? (p. 39)
  • E.g., factor investing and brokerage firmsrevisit
    • 10-2g1f Imitation = limitation (imitation has limitation)
    • QUE5 - What are people in your field religious about, in the sense of being too attached to some principle that might not be as self-evident as they think. What becomes possible if you discard it.
• To quick profits, reply with quick no (p. 40)
  • 2-1a6.1 Remember that most people will pretend to operate in your interest while operating in their own
  • QUE5 - What are people in your field religious about, in the sense of being too attached to some principle that might not be as self-evident as they think. What becomes possible if you discard it.
• Self-serving bias of others must be considered. Otherwise you are a fool. (p. 40)
• Beware hammer-syndrome with creators of a tech (p. 41)
  • 3-1c3c3a1 Don’t be so attached to anything because almost everything is contingent. Assume no self.
• Again, whose bread I eat, his song I sing (p. 41)
  • John Train: “The man who discovers how to turn lead into gold isn’t going to give you the secret for $100 a year”
    • E.g., investment newsletters
• On the “independent” board members (p. 41)
  • 2-1a6 ‘Incentives’ - Incentives drive (almost) everything. Understand your incentives.
  • 2-6 You get what you pay for

Mindlessly imitate the latest fads and fashions

• Sam Goldwyn: “Include me out” (p. 42)
  • 1-1c6a3 Say yes only when both your heart and head say so
• Postpone yes, and say no sooner (p. 42)
  • 1-1c6a3 Say yes only when both your heart and head say so
  • 1-1c6a3.0 The decision should be obvious
  • 4-1a4b2b3 Time will tell because time can de-contextualize seeming necessities
• Natural progression—the three I: Innovators, Imitators, Idiots (p. 43)
  • See Daniel Everett and Charles Sanders Peirce
  • What the wise man does in the beginning, the fool does in the end
    • 10-2g1f Imitation = limitation (imitation has limitation)
• On bubble. On boom and bust. People dance thinking they can leave right before midnight, but the problem is that the clock has no hands (p. 43)
• An originally sound premise turns to focused solely on the price action (p. 43)revisit 
  • Always test and recalibrate your thesis (not limited to investment)
  • 10-2g2c1 Symbols are universal. Being arbitrary and contingent means it can represent anything, and do everything.
    • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.
• Bad ideas are born good. It’s easy to push a really good idea to wretched excess. (p. 44)
  • 1-2b In the quest for truth, what matters is the explanation and not where it came from (the quest for truth ≠ a quest for certainty-justification-necessity)
  • 3-1c3c4 ‘Tendency to distort due to liking or disliking’ - Never be ashamed of citing a bad author if the line is good.
  • 7-1 Create what people want or will want
  • 12-1e0 Everything changes
  • Relate with check the implication from deviation between the price quotations (the Portfolio Structure) and the underlying business operation (the Plan Structure) memosTODO
• The crazy greed, the crazy leverage, the crazy delusions—human behavior stays the same, only the objects of the folly changes (p. 44)
• It’s not the bad idea but the good one carried to excess that do you in (p. 44)
  • 3-1a4b1.1 Mark Twain - ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.‘revisit
• On the 2007 housing crisis (pp. 44-45)revisit
• Delusions produce bubbles (p. 45)
• When you buy something for a sound reason, make sure the reason stays sound (p. 45)
  • 1-1a5b4.4 Real-time calibration (i.e., recalibration) lets you adapt to the changing landscape
• If something can’t go on forever, it’ll end (p. 45)
  • 1-2g2s7b3 An explanation for how something really works cannot rely on infinity
  • 2-1a1a8 ‘Tendency to overestimate consistency of behavior’ - Behavior of others are often not innate-intentional but situational
  • 5-1b2.3 Don’t be the turkey—the Black Swan might be a Grey Swan depending on your perspective
  • 12-1e0 Everything changes
• Things take longer for it to happen, and when it happens it happens faster than you think (p. 46)
  • relate with notes on change and similar memos
  • 1-1c6a3.1 Really good opportunities aren’t often and won’t last long
• On new-form Gresham’s Law. Bad lending drives out good. (p. 46)
• Nothing draws a crowd like a crowd. “Fools rush in where angels fear to trade.” (p. 46)
  • relate with imitation memos and notesrevisit 
• The first chance you have to avoid a loss from a foolish loan is by refusing to make it; there’s no second chance (p. 46)
  • relate with wisdom is prevention memos and notes
• It’s similar to Newton’s first law (that of inertia) (p. 47)
  • 2-1a6c1 ‘Tendency to minimize energy output’ - Align your incentives properly, then (almost) everything will follow
  • 2-1a6c2 Establishing rituals is the key to creating positive inertia
  • 2-4a ‘Commitment & Consistency bias’ - To change your behavior, make changing your belief difficult
• Beware, and work with people who are also aware, the ‘institutional imperative’ (p. 47)
  • 1-1c6a1a Pay attention to what can’t be said (e.g., taboos)
  • 4-1d0 Look at the whole of conversations, including how things are being said as well as what’s not being said (e.g., taboos)
  • QUE5 - What are people in your field religious about, in the sense of being too attached to some principle that might not be as self-evident as they think. What becomes possible if you discard it.
  • RUL3 - It’s useful to ask why about things that seem wrong, and especially ones that seem wrong but somehow funny.
• ‘Everybody else is doing it’ is a red flag (p. 48)
• Unusual managerial discipline is required to measure profitability over volume. (p. 48)
  • 5-2a0 Know what to measure
  • 5-2a1 You get what you measure
• “We tell them to go out and play golf. We sure as hell don’t want to make any dumb loans.” (p. 48)
  • 4-1a4b2d ‘Tendency to want to do something’ - Don’t get paid for work, but for being right.
• Mark Twain: “Whenever you find yourself on the side of the majority, it is time to pause and reflect” (p. 48)
• Temperament is about an emotional stability and an inner peace about your judgements and it comes from ability to think for yourself (p. 49)
  • relate with judgement notes
  • relate with (or create) you need a consistent worldview of your own, and you must keep updating it by yourself
  • relate with knowledge is created individually notesrevisit 
• If you don’t work hard at it, you will fall victim to the folly of the crowd, and there will always be folly of the crowd (p. 49)
  • relate with there’s always anti-rational memes notes
  • relate with recalibration notes
  • relate with stupidity notes (there are dumb people in every professional domains)
• A public opinion poll is no substitute for thought. We want to think. (p. 49)
• You will be right if your hypotheses are correct, if your facts are correct, and if your reasoning is correct. Nothing else. (p. 49)
  • relate with Sherlock
• Trouble with people is they know so much that isn’t true (p. 50)
  • 3-1a4b1.1 Mark Twain - ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.‘
• Everybody gets so much information they lose common sense quote (p. 50)
  • relate with social media notes
• What’s not worth knowing is not worth knowing at all (p. 50)
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
  • 7-1a1a3 If you know that others can solve certain problems, let them. Only work on important problems worth focusing on.
  • 9-4e2c Figure out what’s really worth automating-delegating first, before automating-delegating anything
  • relate with DMU notesrevisit

Overly care about what other people think about you

Let other people set your agenda in life

• Say no (p. 51)
  • 1-1c6a3 Say yes only when both your heart and head say so

Live above your means

Go heavily into debt

• On fretting on leveraged financial institutions. (p. 55)
  • relate with how being conservative can make look Berkshire losing money 99 times out of 100, but in the crucial one time Berkshire is designed to survive
    • this was mentioned in founders #380,
    • as discussed elsewhere, it’s the weakest link which gets hit (e.g., see pp. 54-55).

Go down and stay down when bad things happen

• Low expectations, humor, friends and family (p. 57)
• Interest rate independent (p. 58)
  • because interest is subjective phenomena and how Berkshire operates has nothing to do with natural rate of interest…revisit 
• margin of safety is there to avoid ruin. on that one time out of 100. (pp. 58-59)
  • relate with the same memos
  • relate with Ray Dalio’s uncorrelated bet and Berkshire’s diverse businesses holding
• Usually when the time is right the credit is tight. Have loaded gun. (p. 59)
• Shakespeare quote on the black swan event (p. 61)
  • relate probability notes with black swan notes
• Be wary of low probability events in financial arena than natural arena (p. 61)
  • because knowledge is subjective and created subjectively it’s more wild than nature.revisit 
• Work with people who understand the Lucretius problem (p. 61)
• Margin of safety is related with the black swan (p. 62)
• And again, watch out for the weakest link (e.g., customers and suppliers) because if they go down it might hurt you (p. 62)

When in trouble feel sorry for yourself

Get even and take revenge even if you hurt yourself

• Relate with give it time and distance yourself notes (p. 64)

Be envious

• Improving yourself >>> Penalizing others. (p. 65)
  • See Carlo Cipolla
• Envy is simply negative-sum, rule it out (p. 66)
  • 2-1a1a3d ‘Relative satisfaction (or misery) tendencies’ - Your average five is important, and you can spend time with the best of the best with internet
  • 2-1c4 100x-ing the pie ＞ slicing extra few %

Be unreliable and unethical

• You can fool people some of the time but not forever; when you get old you’ll get the reputation you deserve (p. 67)
  • relate with the portfolio structure catching up to the plan structure memos and notes
• People just don’t see how much money there is in being honest (p. 67)
• Munger was at Salomon? (p. 67)
• A great reputation is like virginity (p. 67)
  • relate with falsification notes
• Sol Price: “Success in business came from deciding which business you could intelligently do without” (p. 68)
  • 1-2f1b9 Repeat what works
  • 7-1a1a3 If you know that others can solve certain problems, let them. Only work on important problems worth focusing on.
  • RUL3 - Invert, always invert
  • See how Sol Price came up with the idea of membership business model
    • 4-1a3b Go to specific places to get specific feedbacks
    • 4-1a5a If you properly set up the conversation you only need a handful of conversations for insights (e.g., via client slicing and segmentation)
• Conduct Unbecoming an Officer (munger was at the military office as well?) (p. 69)
• Teach with what you do, not what you say (p. 69)
  • relate with seeing the front notes
• Peer pressure on the young is far more important (p. 70)
  • relate with concentric learning notes and culture notes
• It pays to hang around with people better than you are because you’ll float upward a little bit. Bad company corrupts good character (p. 70)
  • relate with the five average notes

Be a jerk and treat people really badly

• It’s nice to be important, but more important to be nice (p. 70)
  • relate with notes on being nice
• You’ll meet a lot of people you initially think they are one-stops but they aren’t (p. 71)
  • relate with second order effect notes
• Deliver what you would buy if you were in the other end (p. 71)
  • relate with other similar quotes and notes from munger
• Success is getting what you want and happiness is wanting what you get (p. 71)revisit 
• Be lovable. You always get back more than you give away. If you don’t give any you want get any. (p. 71)
• Ben Graham and the list of unattractive qualities in other people (p. 71)
  • inversion at play
• Show up on time; don’t steal credit; don’t cut corners; avoid envy (p. 71)
• Find, emulate, and associate with good people (and good businesses) (p. 72)
• Remember Grant McFayden, he didn’t need a lawyer (p. 72)
• Read Rules for Making Oneself a Disagreeable Companion, by Ben Franklin (pp. 72-73)

Have a job that makes you feel miserable

• Passion is not the sufficient factor, but likely necessary for success (p. 73)
  • relate with Kobe Bryant quote and absence of evidence notes
• There’s no substitute for strong interest (p. 73)
• Munger’s three basic rules: don’t sell anything you wouldn’t buy yourself; don’t work for anyone you don’t respect and admire; work only with people you enjoy (p. 74)
  • relate with previous memo on deliver what you would buy if you were on the other side
• Particularly avoid working directly under somebody you don’t admire and don’t want to be like. Maybe you have to keep doing it to keep eating for a while but don’t settle for it. You just go out and find somebody else. (p. 74)
• Make yourself a person that you would want to hire. Trustworthiness is more important than brains. (p. 74)

Work with something that goes against your nature and talent

• The best knows that they are playing their game (p. 74)
  • 5-1b1b2b Don’t try to be the best. Be the only.

Believe you know everything about everything

• 130 IQ guy who thinks he’s 125 >>> 180 IQ guy who thinks he’s 200 (p. 76)
  • Munger: “It’s not competency if you don’t know the edge of it”revisit
    • The size of your circle per se doesn’t matter (similar to Buffett’s emphasis on profitability over size)revisit
      • 3-1a4b1.1 Mark Twain - ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.‘
• Confucius: “Real knowledge is to know the extent of one’s ignorance” (p. 77)
  • 5-2c2a0 Avoiding bullshit takes you far enough. Maybe the extra bit comes from really knowing about yourself.
• The shoe button complex (p. 77)
  • 3-1a4b1.2 Define and stay within your circle of competence
• Planck knowledge >>> Chauffeur knowledge (p. 78)
  • 10-2g1f Imitation = limitation (imitation has limitation)
• Beware the articulate incompetent (p. 78)
  • QUE5 - Who has the right answer but I ignore because they’re inarticulate. Who do I listen to who is in essence just good marketing.
• Also beware the twaddler—full of empty talk, rubbish and nonsense (p. 78)
  • 9-4b3e4 Write each sentence like you are talking to a friend
  • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.
• It’s not really that people get pushed out until their aptitude fails to qualify for whatever the new position; he simply has to study what’s required for capital allocation (p. 79)

Associate with assholes

• Relate stupid people notes and pigs (p. 81) 
• Buffett version of surround yourself with better people (p. 81)
  • relate with similar notes
• When you have doubts about a person, you can pass. There are many other nice ones to interface with (p. 82)
• On trust (p. 83)
  • no matter how many contracts you sign, the bad actors will find ways
    • relate with black swan
  • relate this with Bitcoin and smart contract notes.revisit 
• On decentralization and no second guessing (p. 84)
• Leave them alone, and treat them they you would like to be treated if the role is reversed, the Golden Rule again (p. 85)revisit 
• Lack of oversight means we miss some things but overall it is a benefit (pp. 86-87)
  • relate with long term thinking memos and notes.
• Culture, not rule books, determines organizations (p. 87)
  • elaboraterevisit
• People see what’s been done than said, both in children and businesses (p. 87)
  • 10-1b4 Children concentrically embody their ever-widening knowledge structures by testing the degree of its correspondence in comparison with other members of the society
    • 2-1a1a3d ‘Relative satisfaction (or misery) tendencies’ - Your average five is important, and you can spend time with the best of the best with internet
• Businesses are acquired to be held—not to be exited out for cash—the businesses generate cash. (p. 88)revisit
  • it’s like holding its own version of SP500.revisit 
• A good spouse and a good business partner, you have to deserve both (p. 89)
• Garrett Hardin’s quote on the benefit of having two-way debate (p. 90)
  • relate two-way debate note and observation note.
• No worries, have fun, know that terrible things do happen but stay optimistic >>> stresses (p. 91)
  • and if you’re still worried, correct it.

Distort your problems so they fit your wishes

• Queen Elizabeth I: “I like to know what the truth is so I can decide whether to believe it or not” (p. 92)
  • relate with denial memos and notes
• Wishing is poison in business (p. 92)
• Munger quote an adapting to reality as it is (p. 92)
  • relate with Sherlock notes
  • 1-1a5b4.5 Truth is about correspondence with reality
• Avoid ‘thumb-sucking’ (p. 92)
  • Sometimes you don’t have any opportunity cost because you didn’t have any other choice—do with what’s available, and don’t dwell on it.revisit
  • 2-1a0c2 Failing is inevitable, but do not fail epistemologically
• Alex Haley quote on reality dealing with you if you don’t deal with it (p. 92)
  • 1-1a5b4.5 Truth is about correspondence with realityrevisit
  • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long term
  • 5-2c2b3 ‘When you punt something into the future, the future eventually arrives’
• If you have a problem, act now (pp. 92-93)
  • relate with problem-solving notesrevisit
  • relate with second-order thinking notesrevisit 
• One’s objective should be: get it right, get it quick, get it out, get it over. Admit you can’t know everything and state all the facts you do know clearly. (p. 93)
  • relate with time is scarce memos and notes
  • relate with fallibility notes
  • relate with information is incomplete memos and notes (e.g., Li Lu)
  • relate with know what you know notes (e.g., Mark Twain)
  • relate with circle of competence memos (e.g., mono-linked chains) and notes 
• Your problem won’t improve with age (p. 93)
  • 2-3b ‘Leverage’ - The effort put in and its utility-results doesn’t have to correlate at all. Use this to your advantage.
  • 2-3b0 Knowledge creation is not a function of time
  • 4-1a4b2a1 忘却を促進することで、人為的な古典化を起こす。
  • 4-1a4b2b3 Time will tell because time can de-contextualize seeming necessities
• Persian Messenger Syndrome (e.g., CBS and Chairman Haley) (pp. 93-94)
  • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
  • 3-1c1d3 Social media makes news sentiment negative
• Just tell me the bad news; the good news will take care of itself (p. 94)
  • Wisdom is about prevention
    • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
    • 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upside
• If people know you as smart and informed then they’ll trust you and will tell you the truth early—foster such environment. (p. 94)
  • 5-1b4c1b You can easily replace the self-discipline with the four laws of habit formation - (1) make it obvious, (2) make it attractive, (3) make it easy, and (4) make it satisfying

Stick to, justify and rationalize your actions no matter how dumb they are

• Deprival-Superreaction Tendency and Inconsistency-Avoidance Tendency: we don’t like to lose what feels rewarding (pp. 94-95)
  • relate with biases notes
  • for the latter relate
    • making it public memos and notes
    • iteration-habit notes (upside)
    • leverage (how time put in doesn’t matter) notes
• Ben Franklin and J.P. Morgan quote on our ability to make excuses (p. 95)
  • relate with Sherlock notes
• E.O. Wilson: old beliefs die hard even when demonstrably false (p. 96)
  • relate with let the ideas die in your place notes 
    • relate with don’t be an idea notes
• Self-justification (p. 97)
  • isn’t Leibniz’ 最善説 a form of self-justification? maybe he was partially correct in arguing for his form of multiverserevisit
    • relate with explanation must be rooted in opportunity cost memos and notesrevisit 
• Max Planck: science advances one funeral at a time (p. 97)
  • 9-4b3b1 Popper - ‘We let our ideas die in our place’ (another difference between memes vs genes)
    • 3-1c3c3 Take ideas seriously, but not too seriously. Don’t be the idea.
    • 5-1b1a3 We are more than technology, because we create knowledge-technology. We are more than functions. Don’t be a function.
• If one’s incentive is for him to not change, then it’s tough to change him (p. 97)
  • this applies to the individual as well as to collective
  • relate with people change notes
• Hammer syndrome is incentive-caused bias, combined with other psychological biases including commitment and consistency biases (pp. 97-98)
  • what are the other biases?
• Spend no time arguing with people whose idea you know to be stupid (p. 98)
• George Soros: once we realize that imperfect understanding is the human condition, there’s no shame in being wrong, only in failing to correct our mistakes (p. 98)
  • relate with error-correction notes
• Study, and look for, counter-evidence. (p. 99)
  • relate with try to attack your business memos and notesrevisit 
• H.L. Mencken quote. (p. 99)
  • relate with science advances one funeral at a time memos
• Consider yourself a journalist. Assign a story. Assume it’s correct. But look for facts. And don’t be selective in choosing which facts to look at. Don’t let the hypothesis dictate which facts to look at. (pp. 99-100)
  • relate with data need theory notesrevisit
• On negative evidence (p. 100)
• Surround yourself with smart people who don’t always agree with you. Remember Lincoln. (p. 101)
• Remove ignorance piece by piece. Scramble out of your mistakes. (p. 101)
  • relate with piecemeal error correction notes
• On bridge. Information compounds. (p. 102)
  • relate with more is different notes
• On master planning. What is needed is the kind of propensity to disbelieve by changing your previous conclusions. Mike Tyson quote. (p. 102)
  • 2-1a1 ‘The map is not territory’ - Find many maps as possible, across globe-time-fields, and try to bring your map closer to the territory as possible (i.e., reality)
• “If the terrain and the map disagree, follow the terrain.” “One look is worth thousand words.” (p. 102)
• Bion of Borysthenes’ quote on adapting to circumstances just as sailors do (p. 103)revisit 
• The greatest advantage is in not having a strategic plan (p. 103)
• Big ideas pop up occasionally >>> a strategic plan (p. 103)
• Carlyle (William Osler’s favorite quote): “the task of man is not to see what lies dimly in the distance, but to do with what’s clearly at hand” (p. 103)
• On deprival-superreaction syndrome. It’s about loss aversion and our asymmetric reaction to gains and losses. (p. 103)
  • relate with biases notes
• Deprival superreaction tendency is about loss aversion to both possessed reward and almost possessed reward (p. 104)
  • 4-1e1 Loss aversion - e.g., the prospect of competitor buying you, and having have to acquire you later at higher cost, are the two biggest concerns which motivate potential acquirers
  • 6-3z A world without ownership is a world with less creativity and human flourishingrevisit
• Five positive interactions = one negative interaction (p. 104)
• A man reacts with intense irrationally to even a small loss (p. 104)
  • 2-1b2b3 Don’t invest what you can’t afford to lose
  • 4-1e Emphasize what they’ll miss out on, rather than what they can get
• Defenders of a territory >>> intruders of the same species (p. 105)
• Never contend with a man who has nothing to lose, but more so with a man who has everything to lose (p. 105)
  • relate with negotiation and biases notes
• Loss aversion is why we overvalue what we give over what we get. Think from counterparty’s point of view. Take a stand on only important things. (p. 105)
  • 2-1a0b2 ‘Relativity’ - Look at the problem in as many ways as possible. You might as well find new problems.
  • 2-1a0c1d1 Focus on the few variables
• On negotiation. Don’t get into one where you can’t afford to walk away from. Don’t bargain with people you love. (pp. 105-106)
• Don’t throw good money after bad (p. 106)
  • You don’t have to recover by the same way as you lost it
    • 2-1b2f ‘Equivalence’ - Reality doesn’t care genealogy. Solving problems is what matters. How it’s done matters less.
• The stock doesn’t care what you paid or that you own it (p. 106)
  • develop implication for activists
  • develop implication for ownershiprevisit
• Fold early when the odds are against you (p. 106)
• Decisions should be based on the present and where you want to be. Not where you’ve been. (p. 106)
  • relate with sunk cost and anchoring notes and
  • relate price is essentially about future notesrevisit
• Consistency and deprival is linked (p. 107)
• The reciprocation tendency can work in the negative (p. 107)
• Praise by name. Criticize by category. (p. 107)
• “We don’t try to change people. We accept people the way they are.” Think about marriage. (p. 107)
  • relate with management memosrevisit 
• Get in with a culture that’s already the right kind (p. 108)
  • relate with save keystrokes notes
• A culture of trust with reality feedback >>> a culture of trust. Tell people but also to yourself the truth. (p. 108)
• Chuck Huggins’ story (See’s). “Hire friendly people.” (p. 108)revisit 
• Appeal to interest (not exclusive to financial) and not to reason if you want to change conclusions (p. 109)
  • relate with deprival memos (e.g., losing status)
• And explain why. Remember Carl Braun. Always communicate Who is to do What, When, Where and Why. (p. 110)
  • show them the process not just the result, relate with algo notes
• And appeal to the fear of losing what they value (p. 110)
• And (if it makes sense) use an authority figure, a friend, consistency bias for the better (p. 110)
• Ben Franklin having someone lend a book to him tactic example (p. 111)
  • relate with /Franklin
• Franklin tactic can work in reverse (p. 111)
• Ben Franklin: “he that would live in peace and at ease must not speak all he knows nor judge all he sees” and what says that his opinion or solution is the correct one (p. 111)
  • don’t trigger defensive responses in othersrevisit 
• Henry Ford on secret to success is changing perspective. If you do this, you understand why they do what they do. (p. 111)revisit
  • relate with 主語の転換 memos
  • relate with Carl Braun quote memos
  • relate with argue only when you can argue better than the opponent notes 
• Goethe: misunderstanding and neglect is more often than trickery and malice (p. 112)
  • relate with Hanlon’s razor notes (elaborate how’s it’s rooted epistemologically, that is, perfect replication is impossible and no two minds share the same worldview and knowledge is created individually notes)revisit 
• Nietzsche: the value is not in what you get, but what you pay for it, in what it costs us. Fight only important battles. (p. 112)
  • 13-1a3.1 The concept of cost must evoke the multiverse
  • relate with value (or price) is about the opportunity cost notes (if any)revisit 
• If you start objecting to this and this and this, pretty soon people will pay less (or no) attention to you. Save bullets only when it matters. Worse yet, you will not be listened in other occasions too. Don’t shout. (p. 112)
  • relate with information is difference notes (elaborate what constitute noise)
  • relate with stuff translate memosrevisit 
• “Sometimes peace is better than being right. Sometimes you must know when to accept a loss and quit.” (p. 113)revisit
  • Roy T. Bennett: be selective in your battles.
  • Peace ≠ the absence of conflict.

Be an extreme ideologue

• Try to formulate the opposing argument better than the opponents (p. 114)
  • 3-1c3c3a1 Don’t be so attached to anything because almost everything is contingent. Assume no self.
  • 3-1c3c5 Best of all is when you can say they would’ve found this had they taken their own ideas seriously
  • 9-4b2a1f Two-way debate benefits from criticism
  • Also see p. 164 and p. 221
• Medical maxim, first do no harm. (p. 114)
  • 5-2c2a0 Avoiding bullshit takes you far enough. Maybe the extra bit comes from really knowing about yourself.
• Exactitude ≠ Truth (p. 114)
  • 1-2.0 It is better to be roughly right than precisely wrong
• Montaigne: “Yes, but is it true?” (p. 115)
  • 1-1a5b4.5 Truth is about correspondence with reality
• Science is about not fooling yourself (p. 115)
  • 1-2h A good explanation makes it harder to fool yourself
• Take ideas seriously and show how absurd that idea is (p. 116)
  • This is implied when both Buffett and Munger emphasize the importance of extending the Portfolio Structure (price quotations) to the Plan Structure (the underlying businesses)revisit 
    • 3-1c3c5 Best of all is when you can say they would’ve found this had they taken their own ideas seriously
• On writing and orangutan theory (pp. 117-118)
  • 1-2g3.1 It’s explanations all the way down
  • 5-2b1b Writing down makes it easier for your conscious to see the unconscious
  • 9-4b2 Writing is creative destructions happening on paper
  • 9-4c1 If you can’t write about it, you can’t code it. If you can’t program it, you don’t understand it.
• Simplicity reflects clear thinking—and it’s rare (p. 118)
  • 2-1a0c1d1 Focus on the few variables
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
  • RUL3 - When automating, make sure the initial constraints and requirements are not stupid-dumb-bullshit.
  • QUE5 - Who has the right answer but I ignore because they’re inarticulate. Who do I listen to who is in essence just good marketing.

Make it easy for people to cheat, steal and behave badly

• Serpico Syndrome (p. 119)
• Social-Proof Tendency: stop any bad behaviors before it spreads and foster and display all good behaviors (p. 119)
  • relate with biases notes
• If the incentives are wrong, behavior will be wrong (p. 120)
  • Xerox and Joe Wilson (p. 120)
  • Federal Express and the night shift (pp. 120-121)
• You get what you reward for (p. 121)
  • 2-6 You get what you pay for
• Always follow the incentives and there you’d find solutions and truth (p. 121)
  • relate with Sherlock notes and there’s always a motive memo
• Rewards include nonmonetary items like sex, friendship, companionship, status, power, influence, ego (p. 121)
  • 3-1a4b7 The monetary account will increasingly explain the world—especially as it pertains to the human actions—though never exhaustively
  • 13-8a2b Prices do not exhaust value scales, but value scales can be ascertained only through prices in money economy
• Avoiding losses and what’s painful is also a reward (p. 122)
  • relate with counterfactual notes and what counts cannot be counted notes
• Jean de La Bruyere quote on associating your incentives with that of others (p. 122)
  • this backfires when the system doesn’t prevent social-proof tendency (remember “independent” board)revisit 
• Upton Sinclair quote on understanding and incentives (p. 122)
  • relate with notes on understanding othersrevisit 
    • i.e., they won’t understand you if the incentive facilitates that
• Tie incentives to performance and factors that contribute to the ultimate end—value (remember Soviet nail factories) (p. 122)
  • relate with know what you want memos and notes (create if none)
  • relate with you find what you want to want in market memos and notes (maybe management is about constantly refining what you want to achieve and recalibrating the team) 
• Pay for what can be controlled (e.g., low finding cost) over uncontrollable (e.g., oil price) (p. 123)
  • relate with focus on few variable memosrevisit 
• If a CEO bats .150 but Berkshire as a whole performs well, he still gets paid as a .150 hitter (p. 123)
  • make your incentives uncorrelated with others and only correlate with his own performance
    • relate with uncorrected bets notes
    • relate with bat boy anecdote (you cannot uncorrelated anything since everything is somewhat connected)revisit 
• Being a partner means in for both directions. To have both carrots and sticks. Remember Kiewit Corporation. (p. 124)
  • relate with Taleb, Spitz, and Ayache, also relate with volatility notes (options wouldn’t be as prevalent under free market?)revisit 
• Charles Frankel quote on a responsible system. Ask: who bears the consequences? Remember the Roman system for arc builder. (p. 124)
  • relate with Taleb, Spitz, Saifedeanrevisit 
• Don’t 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. (p. 125)
  • relate with human nature notes and Everett notes (ask: human nature doesn’t really change?)revisit 
• Maimonides quote on observation (p. 125)revisit 
• Dread and avoid rewarding people for what can be easily faked (p. 125)
• Achieving complete fairness is impossible. Tolerate a little unfairness to some to get a greater fairness. Remember the Navy anecdote. (pp. 125-126)
  • relate with similar exhaustion is impossible notes, and with free market fairness memos and notes (e.g., from Rothbard, Mises, Taleb, Saifedean)
  • relate with roundabout memos and notesrevisit 
  • 5-2b4a1 小局における矛盾も大局を鑑みると決して矛盾ではないという可能性
• Complete fool-proof is impossible (p. 126)
  • 1-1c6a2 Todo list can be never exhaustive
  • 5-1b1a2c Contingency cannot be exhaustively accounted for, because that amounts to predicting minds and knowledge
  • relate with trust memos and notes (trusting someone means going long vol with that person—theoretically you can trust anyone given enough time but practically you have to choose some people over others because our time is limited)revisit 
• Don’t complicate the system. Keep it simple. Remember the Dean of USC School of Music anecdote on “replacing” candy. (p. 126)
  • Keep it simple and use common sense
    • 2-1a0c1d1 Focus on the few variables
    • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
    • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.
• Complicated system begets people who game the system. And often these gamers don’t understand the system as a whole (e.g., its purpose and meaning). Complicated system often goes out of control. (p. 126)

Risk what you have and need, to get what you don’t need

• The problem isn’t getting rich, it’s staying sane (p. 128)
  • 2-1b2b3 Don’t invest what you can’t afford to lose
• You Only Have to Get Rich Once (p. 128)
  • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost

Only look at the sunny upside

• Think first about what happens when it goes wrong, instead of the upside (p. 130)
  • 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upside
• Always weigh (and compare) the consequences of being wrong (p. 131)revisit 
• When playing Russian roulette, the shot not going off should alarm the next (p. 131)
  • 2-1a1a4a ‘Probabilistic thinking’ - Do not assume miracles!
  • 3-1a4 Explanatory means it will span across ‘boundaries’
  • 3-1a4a1 The whole must be evoked in explaining the parts
• To finish first, you must first finish (p. 131)
  • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
• The first and second laws of thermodynamics oriented approach to perpetual motion machines applies to investing (p. 132)
  • If it doesn’t work, just say no thanks
    • 1-1c6a3 Say yes only when both your heart and head say so
    • 2-1b2b1 ‘Inversion’ - Avoid stupid obvious bullshit you’d regret in the future
    • 9-2a3b Don’t pick up anything which has certain downside. Avoid bullshit.
      • 5-2c2a Prioritize bullshit avoidance over money and prestige. Don’t waste your time.
      • 5-2c2a0 Avoiding bullshit takes you far enough. Maybe the extra bit comes from really knowing about yourself.
    • 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upside
      • 9-2a3b0.2 Understand the downside 5 to 10 years from now
  • How about short?revisit
    • E.g., see my notes on Carlo Cipolla
• All I want to know is if there are any factors that can cause ruin, and if any, never go there (p. 132)
  • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
• Understand the downside five to ten years from now (p. 132)revisit
  • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run
  • 5-1b4a0 We overestimate the technological impact in the next 10 years, but underestimate the next 20 (and often right about 15 years later)
  • 9-2a3b0 Imagine what happens when it goes wrong—think first of the downside instead of the upsiderevisit
• Fact check quote #1098 (p. 132)TODO
• Is the upside worth it? If not worth doing it, don’t do it (p. 132)
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
• On Napoleon’s mother (p. 133)

PART THREE: ON WHAT ELSE DOESN’T WORK AND WHAT DOES IN BUSINESS AND INVESTING

Invest your money in overpriced assets—preferably businesses without any competitive advantages or future and with lousy and crooked management

If you are a businessman think like an investor and if you’re an investor think like a businessman

• Investment is business of capital allocation (p. 134)
  • 5-1b1b1 Become good at multiple things rather than being super good at one specific thing (the former is both easier and effective)
  • 13-9 Man allocates everything so that each unit goes into the use with the highest prospective marginal utility on his value scale—i.e., in accordance with the principle of maximizing his psychic income

Investing is about where to allocate your capital

• On zero and negative interest rates (pp. 135-136)
  • Check the timeline of quotes #1119~1121TODO
    • If various asset prices go up due to lowered interest rate, be aware of the consequences
      • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long term
      • 3-1c3c4.2 “Whenever you find yourself on the side of the majority, it is time to pause and reflect”
• Investment is about the return, when, and how sure you are (p. 136)
  • 13-1a3.0 Return is about how much, when you expect to get it, how sure you are—in comparison with other possible returns

Buy “wrongly” cheap productive assets you understand

• What is smart at one price is dumb at another (p. 137)
• Outstanding business at sensible price >>> Mediocre business at bargain price (p. 137)
  • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long term
  • 3-1a4b2 Price can only convey so much
• When it’s cheap you’ll be able to tell just like you can tell if someone is fat or old without knowing the specific number (p. 138)revisit
• The decision should be obvious (p. 138)
• Get rich slow (p. 139)
  • Having low expectations and having no masterplans and changing expectations when the facts change—it’s all related
    • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run
    • 5-2a Check your growth rate of expectations vs circumstances. The former is hard to measure. But remember - you get what you measure.
• Really good opportunities aren’t often and won’t last long (p. 139)
  • 13-8a2.1 Money is the present good par excellencerevisit
• You get paid for being right (p. 140)
  • 4-1a4b2d ‘Tendency to want to do something’ - Don’t get paid for work, but for being right.
  • See Naval Ravikant

Things are often cheapest when people are fearful and pessimistic

• Barton Biggs: “A bull market is like sex. It feels best just before it ends.” (p. 141)
  • 5-1b2.3 Don’t be the turkey—the Black Swan might be a Grey Swan depending on your perspective
• Human behavior (of others) allows for success if you are able to detach yourself emotionally (p. 141)
  • 4-1a4b2b Being reactive is like being analog in the heat of the moment
• Fear and greed are unpredictable diseases (p. 142)revisit
  • 4-1e1 Loss aversion - e.g., the prospect of competitor buying you, and having have to acquire you later at higher cost, are the two biggest concerns which motivate potential acquirers
• Buffett: “Be fearful when others are greedy and be greedy only when others are fearful—the less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs”revisit
  • 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”
  • 12-1e4 Nothing is objectively and independently good

Be opportunistic and adapt and change when the facts and circumstances change

• “If horses had controlled investment decisions, there would have been no auto industry” (p. 142)revisit
  • 2-1a6 ‘Incentives’ - Incentives drive (almost) everything. Understand your incentives.
    • 2-1a6c1 ‘Tendency to minimize energy output’ - Align your incentives properly, then (almost) everything will follow
    • 3-1c3c3a1 Don’t be so attached to anything because almost everything is contingent. Assume no self.
      • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long term
  • Elaborate the implication for how the government will likely react to Bitcoin, Ethereum, and ZcashTODO
  • Also see p. 156
• You can’t differentiate luck and shrewd decision (assuming there’s a difference). And there’s a background of preparation behind it, which is also not visible (‘p. 143)
  • 9-1b You can’t really transfer your knowledge to others, because each knowledge has to be created individually
  • 9-3a Luck-Skill dichotomy is at best arbitrary. We can train our ability to create ‘luck’.
  • 10-2g1f3 We can only figure out what they know by what they do (‘performance’), because we can never directly study what people know (‘competence’). To assert that we can is a common error in thinking.
• There are mispricings (p. 143)
  • 13-5b2k There is no such thing as mispricing, at least objectively
• Deprival-superreaction tendency—Belridge Oil example (pp. 143-144)
  • See p. 104 as it explains what deprival-superreaction tendency is
• When you see something with (almost) no downside risk with upside potential, go at it with little more courage (p. 144)
  • 1-1c6a3.1 Really good opportunities aren’t often and won’t last long
  • 2-1b2b4 Look for value-added risk reducing trades
  • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
    • 5-2c Be impatient about the things you most want to do

Stick to businesses where you can assess that their economics is good and getting better

• E.g., See’s Candies (pp. 145-146)
• Constantly changing means being exposed to errors constantly. Berkshire avoids them when investing. (p. 146)
  • This doesn’t mean Berkshire is against changes—just that they look for something rather predictable when they invest
    • See the important and knowable filter below (p. 203)
• Internet isn’t going to affect how people shave (p. 147)
  • 5-2c2b The Lindy effect
    • Ask: what doesn’t change with AI?revisit
    • Ask: what doesn’t change with crypto (e.g., Bitcoin and ETH)?revisit
• The law of least effort >>> Change (p. 147)
  • 2-2c ‘Tragedy of the commons’ - Also look for negative lollapalooza effects (‘devolution’)
    • 2-1a6c1 ‘Tendency to minimize energy output’ - Align your incentives properly, then (almost) everything will follow
    • 4-1e1 Loss aversion - e.g., the prospect of competitor buying you, and having have to acquire you later at higher cost, are the two biggest concerns which motivate potential acquirers
• Buffett: “Risk comes from not understanding what you’re doing.” (pp. 147-148)
  • 3-1a4b1.2 Define and stay within your circle of competence
    • This applies to anything (e.g., poker)
    • This is the meaning of understanding a businessrevisit
      • But the circle can be widened
    • 5-1b1b2b Don’t try to be the best. Be the only.

Buy assets protected with a durable competitive advantage run by able and honest people

• You need the moat and the knight who can widen the moat. (p. 148)
  • 3-1a4b1.3 Your circle of competence can be widened, deepened, made clearer

Understand why it has a moat—the key factors and their performance

• Personal thought: having a moat challenges the basic economic assumption of competition (p. 149)
  • 2-1b3 Play different games. Avoid competition.
  • 11-3.1 ‘Equilibrium’ - Anything innovative escapes the Invisible Hand
    • Specifically, it challenges the fundamentality of the notion of DMUrevisit
• Pick (or be) the low-cost producer (p. 149)
  • 3-1a4b8 With few exceptions, buy on the cheapest market and sell on the dearest leads to satisfaction of the most highly valued ends of each individual, both as consumer and as a producer
  • 7-1d Create something simpler-faster-cheaper for things we’ve been doing for thousands of years
  • E.g., GEICO, The Nebraska Furniture Mart (p. 150)
• Just take care of the customers (p. 151)
  • E.g., ISCAR (p. 151)
  • See Jeff Bezos (or 安田隆夫)
• Sam Walton: “There’s only one boss—the customer—and he or she can fire everybody in the company from the chairman down, simply by spending his or her money elsewhere” (p. 151)
  • Consumer sovereigntyrevisit
    • 13-5e The capitalists are constrained by the aggregated time-preference schedules just as sellers of any other present goods are constrained by the aggregated demand schedules of the consumers
• Never abuse current clients by trying to get new ones. (p. 151)
  • Remember where you came from
    • 3-1a4b1.3 Your circle of competence can be widened, deepened, made clearer
    • 9-4b2a1d A group of people who doesn’t know who they are and where they came from won’t make it to the moon or Mars
    • 10-1b4 Children concentrically embody their ever-widening knowledge structures by testing the degree of its correspondence in comparison with other members of the society
  • The general rule here applies elsewhere in life
    • 5-2c2b3 ‘When you punt something into the future, the future eventually arrives’
  • Only a handful of Web2 companies can “abuse” the clients (e.g., via high take rates)—you have to establish the brand firstrevisit
    • The strength of Alphabet (Google), Amazon, Apple, Meta, and Microsoft comes from the brand
      • Betting on essentiality and pricing power is now on the side of the majority due to index investing—remember that what is smart at one price is dumb at anotherrevisit
    • Elaborate, e.g., my note on Web3 writingTODO
• Eliminate what irritates the customer (p. 152)
  • Always invert

One test of the strength of a moat is essentiality and pricing power

• The Daily Racing Form, Reed-Elsevier (pp. 152-153)
• Transportation and energy are essential (p. 153)
  • remember DS
  • Berkshire’s energy businesses holding is composed such that all are recession resistant and uncorrelated and can withstand regulatory attack.
• Moat of railroad companies is saturation (p. 154)
• Homes, auto, and insurance are essential. (p. 154)
• Have a special place on people’s mind then you can raise the price (p. 154)
  • relate with DMU notes and symbol (or association) notes
• Pricing power implies essentiality. Look at the pricing behavior of the product (not the stock). (p. 154)revisit
• Get the basics well. You don’t have to do extraordinary things to get extraordinary results, don’t get diverted and instead focus on what works. (p. 155)
  • 1-2f1b9 Repeat what works
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
• You should’ve shorted horses instead of buying up autos. Ask: who loses? (p. 156)
• Can you name any single American TV or radio manufacturer? (p. 156)
• Growth in an industry doesn’t mean profitability because of competition (p. 157)
  • relate with tiptoe memo and notes (emergent disorder)
• Munger on Facebook (lol) (p. 157)
• Business ≠ industry (p. 158)
  • relate with individuals ≠ society memos and notes
• Business ≠ franchise. Many operations are in between weak franchise and strong business. (p. 158)
• Dead fish won’t swim how hard you try proverb (p. 159)
  • relate with Marc Andreessen memos and notes again
• Permanent problem ≠ temporary setback. Differentiate the two. (p. 159)
• Bad news—if you see one, usually there’s more (p. 159)
  • relate with sloppy one thing likely means sloppy elsewhere memos and notes, and anything else related (e.g., bad news is easy to detect and likely gets exaggerated notes)
• Share of mind >>> share of market (p. 160)
• You rarely get poor investing in utilities (p. 160)
• Good business throws up one easy decision after another (p. 162)
• In commoditized businesses, you can’t really differentiate yourself (p. 162)
• Get attractive security in attractive industry (p. 162)
• Tech is based on change; and change is the enemy of the investors (p. 163)revisit 
  • 2-1b2e0 The less guessing layers the better
• Ask: can I compete and hurt a business with a billion dollars? (p. 164)
  • a business should be attack-prone
• Andy grove and silver bullet question (p. 164)
• I wish I didn’t know now what I didn’t know then quote (p. 165)
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
• Retailing is competitive (p. 165)
• On retailing (e.g., Costco and Amazon) (p. 165)
• Pay attention to mistakes of omission, and learn from them (p. 167)
  • relate with absence of evidence notes
• Check the track record of Berkshire’s investments (p. 168)TODO 
• small mistakes are fine—it’s about payoff (p. 168)
• acknowledging and analyzing errors >>> agonizing over errors (p. 169)
• Ask: is this a good (or bad) business? Why? (p. 169)
• Buffett’s quote on reality centered cast of mind (p. 169)
  • relate with Sherlock and Deutschrevisit 
• The company should be viewed as an unfolding movie, not a still snapshot (p. 171)
• The story of an ailing horse, again. Ask: is the business for sale because it’s walking just fine? (p. 171)
• Mark Twain: a mine is a hole in the ground owned by a liar. (p. 172)
• Buffett and Keynes on business is success is about future, not past. And you also have to explain why the business was successful in the past. (pp. 172-173)
  • relate with tracing the origin notes and quote from Paul valery
• Ask: what forces can stop the current ongoing success? (p. 173)
• Ben Franklin: a small leak will sink a great ship (p. 173)
  • relate with small changes can go unnoticed until too late notes
• ABCs of business decay: arrogance, bureaucracy, and complacency. “Whom the gods want to destroy, they send forty years of success” (p. 174)
• Don’t employ unnecessary assistants. Parkinson’s law. (pp. 174-175)
• Widen the moat, build enduring competitive advantage, delight customers, and fight cost (p. 175)
• Don’t underestimate the ability of others to do the same exact thing you’re about to do (p. 175)
• The tendency gets magnified with disliking bias of competitors. Be aware. (p. 176)
  • relate with biases notes
• Andrew Carnegie: look out for the boy sweeping floors, not the rich man’s son (p. 176)
  • relate with outsider notes and others
• Buffett comments on food inflation. Also if horses could’ve voted, they would’ve voted down tractors. (p. 176)
  • relate with Saifedean’s argument on food inflation, and also Fiat Food.
• Schumpeter quote on innovation: it strikes not at the margins, but its very foundations and lives (p. 176)
  • relate with /econ notes (e.g., Rothbard)revisit 
• Businesses die. Sometimes better to just get out. Remember the Northern Pike Model (e.g., Walmart vs other chains). (pp. 176-177)
• Stop digging. Fight wishful thinking, consistency bias, and loss to aversion bias. Stop wasting resources (e.g., time). Get out leaking vessels. (p. 177)
  • relate with biases notes
• You don’t have to make it back the way you lost it (p. 178)
  • Relate with money abstraction notes and method-independent notes (often times how doesn’t matter)
    • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
    • 2-1b2f ‘Equivalence’ - Reality doesn’t care genealogy. Solving problems is what matters. How it’s done matters less.
    • 13-5b2a Because of money, the concept of rate of return can be abstracted to the ratio between present goods exchanged against future goods in general
• Businesses are bought for keeps (p. 178)
  • 2-1b2 Play in different time horizon. That is, in the long-run.
• With stocks and bonds, if we find something more attractive, we sell (p. 178)
  • relate with opportunity cost notes
• Not price but value is what matters with investment. (p. 178)
• Organization foolish in one way is likely foolish in other areas (p. 179)
  • relate with sloppy in one area memos and notes
• We just find people who’ve batted .350 for 10-50 years. We don’t train them. (p. 179)
  • relate with the decision should be obvious memos and notes
• You can’t put passion into someone, but it’s easy to take it away. Don’t do that. (p. 180)
• Work with winners. Remember Eddie Bennett and Yankees. (p. 180)
• Being good at one thing doesn’t mean you’ll be good at another (p. 181)
  • relate with sloppy in one area memos (as a counter?)

Go in a field, in which you have no interest, not any competence or talent for, no edge in and where the competition is huge

• Don’t do things you know you can’t do. Stick with what you’re good at. Know your game and that of others—play the former, and not the latter. (pp. 182-183)
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
  • 3-1a4b1.2 Define and stay within your circle of competence
  • 5-1b1b2b Don’t try to be the best. Be the only.
    • See Marc Andreessen and Naval—changing the game is literally game-changingrevisit
      • By knowing your game, the game is changed for you—put differently, you can be the game (“game the system”).revisit
• Allocate your time according to your talent (p. 182)
  • Or have fun because the DMU framework cannot capture the-more-is-different nature of knowledgerevisit
    • 2-1a7a Curiosity (i.e., the Fun Criterion) leads you to wealth, because wealth is knowledge
    • 2-1a7b Work in a field you have both a natural aptitude for and deep interest in. It should become increasingly interesting as you learn more about it.
    • 11-3.4a More is different
    • 13-9 Man allocates everything so that each unit goes into the use with the highest prospective marginal utility on his value scale—i.e., in accordance with the principle of maximizing his psychic income
• Just pick weak competitions (p. 183)
• Get in the right train, and why “idiots” can get rich (p. 184)
  • See Marc Andreessen’s emphasis on being in the right market over team and product
    • Ask: am I in the right business, industry, market?revisit

Think about where the business is going to be in the future—not macro factors

I personally think “microeconomics” in the context used here can be construed as referring to individual tech (e.g., quantum computation), and “macroeconomics” as referring to the interaction with (and between) such technologies—predicting the latter is impossible, whereas with the former you can start from the individual tech if you know where to look. It seems Paul Graham and Naval Ravikant elaborated this point better than Buffett and Munger.revisit

• Microeconomics >>> Macroeconomics (p. 185)
  • 2-1a7a5 Build day by day unless anything fundamental (‘the core’) changed. Superficial-uncontrollable criteria (e.g., share price) matter less.
  • 3-1c1a Prioritize performance-oriented media (i.e., news-you-can-use, including tutorials and fitness-diet-sleep scoreboard which you have control) over consumption-oriented media
  • QUE5 - Anything fundamental changed vs superficial-uncontrollable metrics
• Buffett: “We want to buy good businesses that are run by good people in good places. It’s like getting married. If you’re getting married tomorrow, you’re not going to worry about a headline today. You’ve just got to be sure you’re marrying the right person.” (p. 186)
  • 1-1c6a3.0 The decision should be obvious
  • 1-1c6a3.1 Really good opportunities aren’t often and won’t last long
• Munger: “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.” (p. 186)
  • 3-1a4b1.2 Define and stay within your circle of competence
• No rainbow without a cloud or a storm (p. 187)
  • 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”

Common sense is better than advanced math and computer models (pp. 190-192 has a summary)

• On the Internet mania
  • Buffet: “When we buy a stock, we always think in terms of buying the whole enterprise because it enables us to think as businessmen rather than stock speculators… Any time you get involved in things where if you trace out the mathematics of it, you bump into absurdities, then you better change your expectations somewhat.” (p. 188)
    • Think about the absurd consequences that would follow if what they expect should be true
      • Buffett here meets Sherlock Holmes
        • 1-1a4b You can’t cope with the reality solely via induction or deduction
        • 1-1a5a1 The process of argument starts in the middle, and doesn’t start with axioms and end with the conclusion
      • 1-1a5b4.4 Real-time calibration (i.e., recalibration) lets you adapt to the changing landscape
      • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.
      • RUL3 - Invert, always invert
    • Buffett and Lachmann both essentially argue that the Portfolio Structure will reflect the underlying Plan Structure (see, e.g., this note on the triad)
      • But I think it can also work the other way—the Portfolio Structure can affect the Plan Structure, not temporarily or on surface, but substantiallyrevisit
        • The prime example: boom-and-bust cycle induced by malinvestment infused with fiat money printed by the government
          • 2-2c ‘Tragedy of the commons’ - Also look for negative lollapalooza effects (‘devolution’)
          • 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”
        • If so, what’s the implication for Buffett’s view?revisit
          • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
• Roughly right >>> Precisely wrong (p. 189)
  • 1-2.0 It is better to be roughly right than precisely wrong
• Common sense >>> Computer models (p. 189)
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
• You shouldn’t need a spreadsheet to decide (p. 190)
  • 1-1c6a3.0 The decision should be obvious
• People calculate too much and think too little (p. 190)
  • 5-2 What counts cannot be counted
• It’s not competency if you don’t know the edge of it (p. 192)
  • 3-1a4b1.2 Define and stay within your circle of competence
• Less is often more—look for good businesses where one or a few key factors are critical (p. 192)
  • 2-1a0c1d1 Focus on the few variables
• Buffett: “When Charlie and I buy stocks—which we think of as small portions of businesses—our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings—which is usually the case—we simply move on to other prospects.” (p. 193)
  • 2-1b2 Play in different time horizon. That is, in the long-run.
  • 2-1b2e0 The less guessing layers the better
  • 3-1a4b1.2 Define and stay within your circle of competence
  • 10-2g1g Scientific knowledge implies location-time-scale-independent applicability
• Sandy Gottesman: “What do you own and why do you own it?” (p. 193)
  • 6-3z A world without ownership is a world with less creativity and human flourishing
• Write down your investment decision, preferably in a paragraph (p. 193)TODO
  • 2-1a0c1d The One Commandment is about focus - Focus on a single moral innovation
  • 2-1a0c1d1 Focus on the few variables
  • 2-1b2e ‘Algorithms’ & ‘Replication’ - Share your problem-situation as clearly possible, so that others can make decisions without you on your behalf (i.e., multiply)
  • 9-4c1 If you can’t write about it, you can’t code it. If you can’t program it, you don’t understand it.
• Investing is about finding a mispriced gamble, and you have to know enough to decide if it’s mispriced (p. 194)
  • The statement here—particularly the use of the word gamble—implies that nothing is mispriced objectively
• Mr. Market >>> PnL (p. 195)
  • To be more precise, when your measurement criteria is PnL, then Mr. Market might dictate yourevisit
    • You want to use Mr. Market—never to be used
• The playing field (the Plan Structure) >>> Scoreboard (the Portfolio Structure) (p. 196)
  • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long term
• Wayne Gretzky: “Go to where the puck is going to be, not to where it is” (p. 196)
  • 2-1b2 Play in different time horizon. That is, in the long-run.
  • 13-1a3a2e7 Values (and also prices—to the extent that value scales can be ascertained only through them) are not concerned with the past
  • 13-1a3a2e8 The capital value—the “price of the good as a whole”—of any good at any time is based on expectations of future rental prices
  • 13-8a2 The demand for money stems from fundamental uncertainty about both the future environment and the future-self
  • 13-8a3 Money must evoke the past, but the demand for money lies in the future
  • QUE5 - Don’t aim for the average — Ask ‘What is rich doing’ ‘What are nerds doing’develop
• Buffett: “Risk is loss of purchasing power. Volatility declines over a long enough timeframe. It is individuals that make investments risky.” (p. 197)
  • 11-1d There is no objective risk
  • 12-1e4 Nothing is objectively and independently good
    • 6-3a2.1 How you achieve something matters as much as what you achieve
  • Why does Buffett not invest in Bitcoin?revisit
• Buffett: “There is a certain natural tendency to overlook anything simple and important” (p. 197)
  • I believe this is due to the combination of
    • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
      • 3-1c3c3a Realize that having invested time in something doesn’t make it good. There is no necessary correlation between the time you put in and its usefulness.
    • 4-1a4b2d ‘Tendency to want to do something’ - Don’t get paid for work, but for being right.
  • Also see p. 126 and p. 202 (and also p. 119)
    • 2-1a0c1d1 Focus on the few variables
    • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
• Questions to ask when investing—assuming its management is able and trustworthy: Can I understand it—figure out its economic future and estimate an earnings range?; What are the key factors in this type of business and how predictable are they?; Is it an essential business to customers now and in the future?; Or is the need likely to go away or can what the business offer be copied or replaced by other sources?; Has it earned high returns on tangible capital?; Is it going to produce more money over time?; Does it have a moat—a sustainable competitive advantage and defense against threats? (pp. 197-198)
  • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-runrevisit
• Even if the economics are great, the investment can still be bad if the price is too high (p. 198)
  • 3-1a4b2b What is smart at one price is dumb at another
• What can cause you to decline the opportunity: I have no idea where the business will be in the future—how it will look like, it isn’t essential and can easily be replaced and it involves rapid and constant change where it’s extremely hard to know how the winners will be; I have no clue as to what the key factors to look at are; I can’t even roughly guess their future earning power or return on capital; I can’t judge why customers use this kind of product or why they should buy them from this company rather from someone else; their return on capital is lousy; I don’t see how they are protected from its many competitors; I have no idea what their competitors will be offering in the future or even how they will look like in the future; neither do I have any idea what differentiates the business from their competitors or how to spot competitive advantage in this type of business; and even if I could—I can’t judge if their moat will last or not (p. 198)
• Buffett: “If you can’t recognize the moat, it doesn’t mean there isn’t one there. It may be you can’t recognize it and then you go onto the next one.” (p. 198)
  • 1-1a5b4.4 Real-time calibration (i.e., recalibration) lets you adapt to the changing landscape
  • 3-1a4b1.2 Define and stay within your circle of competence
  • 13-4d4 Value is subjective
• If you buy businesses for less than what they are worth, you’re going to make money. If you know which businesses you can and cannot value, you’re going to make money. (p. 198)
  • 3-1a4b1.2 Define and stay within your circle of competence
  • 3-1a4b2b What is smart at one price is dumb at another
  • 12-1e4 Nothing is objectively and independently good
• The best time to get rich is in a crisis. You need independent thinking, financial preparation, and mental preparation. If you can detach yourself temperamentally from the crowd—you get very rich. It doesn’t take brains (although you need the right basic ideas)—it takes temperament. (p. 198)
  • See also p. 71
    • 2-1a0c1a ‘Influence of stress’ - ‘In the thick of battle, you will not rise to the level of your expectations, but fall to the level of your training’
    • 3-1c3c4.2 “Whenever you find yourself on the side of the majority, it is time to pause and reflect”
    • 3-1c3c4.3 “Be fearful when others are greedy and be greedy only when others are fearful”
    • 4-1a4b2b Being reactive is like being analog in the heat of the moment
    • 5-1b1 Invest in preparedness. Be redundant and resourceful in every aspect. Minimize opportunity cost to achieve great things.
    • 13-8a2.1 Money is the present good par excellence

PART FOUR: ON FILTERS AND RULES

The right filters conserve thought and simplify life

• 3-1d6 Constraints in the form of consistent style leave space for creativity and progressrevisit
• RUL3 - When automating, make sure the initial constraints and requirements are not stupid-dumb-bullshit.revisit

Never lose sight of what you’re trying to achieve or avoid

The tune out “folly” filter

• Get rid of the nonsense fast. if you know it’s nonsensical then don’t even think about it. (p. 201)
  • Remember how chess grandmasters operate
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
• When it’s too simple it might not spread fast. (p. 202)
  • I think the method of Buffett and Munger doesn’t spread easily because it’s against human psychology (what most people would call “human nature”)revisit
    • 1-1a2a There is no human nature if by this we mean a kind of a priori knowledge common to all and only to humans
    • 1-2g1d We are universal explainers. We can transcend our biological limitations.
    • 7-1a4b Understanding the measurement-constraints amounts to understanding the system-incentives. That is, creating explanations.

The important and knowable filter

• Narrow it down to the important and knowable. (p. 203)
  • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
  • 2-1b3a1 Narrow it down so you can have a chance to build your own moat
  • 7-1a1a3 If you know that others can solve certain problems, let them. Only work on important problems worth focusing on.
• Circle of competence is about knowing your limit (p. 203)
  • 3-1a4b1.1 Mark Twain - ‘It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.‘
  • 3-1a4b1.2 Define and stay within your circle of competence
    • The concept is epistemological

The circle of competence filter

The too tough filter

• Avoid competitions, and if it’s losing ship, get out (p. 205)
  • 2-1b3 Play different games. Avoid competition.
  • 2-1b4 Not fighting can win you the battle
  • See Marc Andreessen
• On acquisitions
  • Munger: “When you mix raisins and turds, you’ve still got turds” (p. 205)
    • 2-1a1a3a You’re the average of your five closest friends OR You’re the average of the people whose content you consume the most
    • 2-1a1a3d ‘Relative satisfaction (or misery) tendencies’ - Your average five is important, and you can spend time with the best of the best with internet
• Mistakes are forgotten and successes are exaggerated—revisit past decisions (p. 206)
  • Keep your Hall of Shame (see, p. 212 below)
  • 2-1a1a9 ‘Survivorship bias’ - We only see what can be seen
  • 3-1c1d6 Media grabs what’s easily grabbable (e.g., short-term over long-term development)
  • 5-2b Errors of omission are dangerous because you make them by default
• Get the no-brainers off the desk fast (p. 207)
  • Do this both in big picture stuff as well as when facing a problem (i.e., approach no-brainer parts first)
    • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
    • 5-2c2a0 Avoiding bullshit takes you far enough. Maybe the extra bit comes from really knowing about yourself.
• Edward Tuft: “The idea is to find important problems that can be solved” (p. 207)
  • 7-1a1a3 If you know that others can solve certain problems, let them. Only work on important problems worth focusing on.

The opportunity cost filter

• It’s about personal opportunity costs, and since your value scale changes what’s best for you also changes—you have to reevaluate your opportunity costs all the time (pp. 208-209)
  • 1-1a5b4.4 Real-time calibration (i.e., recalibration) lets you adapt to the changing landscape
  • 13-6a The same individual exhibits different scale of values at different times
• The more you know, the higher the bar—but remember to stay within your circle of competence (p. 209)
  • This is implied in personal opportunity costs argument, and also in the context of value scales—because what you don’t know cannot be in your value scale
    • 13-9a1 A value scale consists of goods with which the individual is familiar—the good will not be on the value scale if the individual does not know about that good
  • Put differently, it should get easier (Warren Buffett meets Paul Graham)
    • 1-1c6a1b Your ability to detect surprises will get better, and you will never be short of them
    • 5-1b1b1a1 Things can become easier the more complexity you have (Network effects = Power-law)
    • 5-1b1b1a1.1 The more anomalies you’ve seen, the more easily you’ll detect new ones. Life should become more and more surprising as you grow older. It compounds.
  • 12-1e4 Nothing is objectively and independently good—as discussed in p. 18
  • If you want to manage money for Charlie Munger and Warren Buffett, you have to be better than Li Lu
• Do with what’s available (p. 210)
  • Similar in spirit with concentric circle (how children acquire languages):
    • 10-1b4 Children concentrically embody their ever-widening knowledge structures by testing the degree of its correspondence in comparison with other members of the society
    • That is, you have to widen (or deepen, or clarify) your circle of competence (i.e., your conception of reality) gradually and reflexively
      • 3-1a4b1.3 Your circle of competence can be widened, deepened, made clearer
• Comparing new opportunities against what’s available is the same in spirit to asking at night how what you’ve learned that day relates to what you already know (p. 211)
• The goal is to make the best choice at that point in time, and not the best choice ever, because the world—including yourself—is in flux (p. 211)
  • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
• Hall of Shame—not just about what didn’t work, but also what could’ve been done, that is, counterfactuals (p. 212)
  • 5-2b Errors of omission are dangerous because you make them by default

The ”and then what” filter

• Ask: then what? (p. 213)
  • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
• You can’t just do one thing and leave all other elements unchanged—this is principle both in ecology and legislation (p. 214)
  • 2-1d ‘Ecosystem’ & ‘Thermodynamics’ & ‘Double-entry bookkeeping’ - Everything is connected, there is no free lunch
  • 9-4b2a1b Build the Idea Maze - Explain the history around an idea, and why yours is a good one. Virtually render the history of the evolution of that idea.
  • Put differently, you cannot unbundle everything:
    • See, e.g., 3-1a4b5 Anything can be priced in principle. But not everything will be.revisit
• Parade-tiptoe problem (p. 215)
  • In spirit this is a spontaneous disorder phenomenon—but you can avoid this one if you think it through
    • 3-1c3e1 There are emergent problems which will emerge as you go about life, that can only be accounted for with new explanations
• Gresham’s Law is both an example of unwanted consequences and what Garrett Hardin calls a pejoristic system—a system which by its very nature makes matters worse (p. 216)revisit
  • 2-2c ‘Tragedy of the commons’ - Also look for negative lollapalooza effects (‘devolution’)
    • 6-3b3g Federated (protocol) networks have a tendency, a fundamental by-product of their architecture, to evolve into corporate networks because network effects ensure that small advantages compound to create big winnersrevisit
• Don’t fool yourself (p. 217)
  • 1-2h A good explanation makes it harder to fool yourself

The ”compared to what?” filter

• Look at the corporate cemetery (p. 218)
  • 1-1c6a1c The absence of evidence is not the evidence of absence
  • 1-2g2s8 The unobserved parts of the wider phenomenon have in no way affected what we observe, yet they are essential to its explanation. Causation doesn’t exhaust explanation.revisit
    • 2-1a1a4a ‘Probabilistic thinking’ - Do not assume miracles!
• Opportunity cost filter + Compared to what filter + Then what filter (p. 219)
  • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
  • 2-1c ‘Opportunity costs’ - Look beyond the obvious. See what’s hidden.
  • 12-1e4 Nothing is objectively and independently good
  • You have to think in terms of available alternatives, and the possible consequences of each alternativerevisit
    • You have to figure out the multiverse
      • 9-4b2a1b Build the Idea Maze - Explain the history around an idea, and why yours is a good one. Virtually render the history of the evolution of that idea.
      • 10-1a5 Digitizing history means explaining each fork as contingent points (the could’ve been) for the history around an idea. History is the Idea Maze, and must be created symbolically (never non-digitally nor indexically) by the individuals.

Checklists help—assuming we are competent enough to pick the key factors and evaluate them

• Checklists are no substitute for thinking, but powerful (p. 221)
  • RUL3 - When automating, make sure the initial constraints and requirements are not stupid-dumb-bullshit.
    • 2-1a1a8 ‘Tendency to overestimate consistency of behavior’ - Behavior of others are often not innate-intentional but situational
    • 2-1a6c ‘Inertia’ - In most ordinary moments the situation thinks for us, and these seemingly insignificant decisions compound.
• Always surprise the enemy (p. 221)
  • 5-1b2.3 Don’t be the turkey—the Black Swan might be a Grey Swan depending on your perspective
  • On surprises
    • 1-1c4 To be surprised is to be mistaken
    • 1-1c5 Surprises are the doors to revealing the inexplicit and the unconscious
    • 4-1c Great negotiators actively try to reveal hidden assumptions, that is, they look for surprises. They are more than just being ready for them.
  • You have to go beyond merely doing what the opponent doesn’t want
    • You have to be “stupid” in the sense of being unpredictable, but not in the sense of harming yourself and others (which is the definition of stupid people by Carlo Cipolla)—this is probably what differentiates merely being rational and being creative (and why creator is often an obsessed fanatic).revisit
      • Charlie Munger and Warren Buffett were likely obsessed with avoiding obvious mistakes and problems.revisit
        • 2-1b2b1.2 Anything worth doing is worth doing to excess
  • Personal thought: war, history, and ideas evolve by reconfiguration—you will lose if you associate yourself too strongly with specific configurationrevisit
    • 3-1c3c3a1 Don’t be so attached to anything because almost everything is contingent. Assume no self.

Have some avoid-rules

Learning never stops

A Few Lessons for Investors and Managers from Warren Buffett – Peter Bevelin

1. What Investing in Financial Assets is All About

Laying out cash today in order to get more cash back in the future

• Investment is about cash (p. 1)
  • 13-8a2.1 Money is the present good par excellence
• And return (p. 1)

What return I will get on my cash depends on the price I pay, how much cash I get back, and when I get it back

This return can then be compared with the expected return from other available opportunities

• 13-1a3.0 Return is about how much, when you expect to get it, how sure you are—in comparison with other possible returns
• Return matters in comparison with other possible returns
  • Return per se doesn’t matter—it’s all about opportunity cost and choosing the best option
    • 12-1e4 Nothing is objectively and independently good
    • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
    • 13-1a3.1 The concept of cost must evoke the multiverse

Since my return depends on the price I pay compared to what it’s worth, I should never pay more than what I get back in value

• What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid? (p. 1)
• Personal thought: the key to Buffett’s success is that he has comprehensive explanation as to why his method works—and he sticks to it
  • 5-2a0 Know what to measure
    • 13-4d2 There is no objective value
      • 2-1b2f ‘Equivalence’ - Reality doesn’t care genealogy. Solving problems is what matters. How it’s done matters less.
      • 3-1d6 Constraints in the form of consistent style leave space for creativity and progress

To do that I need to be able to figure out what a financial asset is worth—how else can I know what kind of return I can expect at a given price?

2. Valuation

Follow the cash—it’s the only thing I can spend

• 13-8a2.1 Money is the present good par excellence
• John Burr Williams (in The Theory of Investment Value): “The value of any stock, bond or business today is determined by the cash inflows and outflows—discounted at an appropriate interest rate—that can be expected to occur during the remaining life of the asset”revisit
  • Land is valuable to the extent that people see it as such—that is, land is a good
    • Challenge, e.g., this noteTODO
  • 13-4d5b There is no risk-free interest in the free market
    • That is, even the discounting component is subjective
      • 13-4d4 Value is subjective through and throughrevisit

So valued, all financial assets become economic equals

• Because it’s all about cash, the business specifics don’t matter (p. 2)
  • 13-5b2a Because of money, the concept of rate of return can be abstracted to the ratio between present goods exchanged against future goods in general

It doesn’t matter where the cash comes from —it all spends the same

• 2-1b2f ‘Equivalence’ - Reality doesn’t care genealogy. Solving problems is what matters. How it’s done matters less.

The financial asset that has the highest value compared to its price is the one that gives you the highest return

• 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people

Since the future is unknown, value is naturally a rough estimate, not a precise figure

• When you take Popper seriously, you will find Buffettrevisit
  • 1-2.0 It is better to be roughly right than precisely wrong
    • 1-2 We are fallible
  • 1-2g1a1 Popper, Turing, Everett, Dawkins (then Deutsch himself) gave a better explanation as to why the prevailing theories were true after all (unfortunately, they have found themselves constantly on the defensive against obsolete theories)
  • 1-2g2u The explanation (the theory of knowledge) must involve quantum physics, the Turing principle (the theory of computation), and, as Popper himself stressed, the theory of evolution.
  • 9-1c When you take Popperian epistemology seriously, you take people (including children) seriously

And fancy computers don’t help

• When you take Turing, Deutsch, and Everett seriously, you will find Buffettrevisit
  • 1-2g2b3 Computational universality is about computers inside our physical world being related to each other under the universal laws of physics to which we (thereby) have access (because human brains are computers)
  • 1-2g2b4 The universality of computation is a property of hardware and rather uncontroversial. The universality of explanation is a property of software and rather controversial.
  • 1-2g2b6 Universal computers would be dependent on universal explainers
  • 1-2g2i0 Life is computation in the sense of assuming other object (i.e., genes assuming its surrounding environment)
  • 10-2d1a The regularity in nature can be expressed arbitrarily well either by the language of mathematics, natural language, or by computers (zeros and ones)
  • 10-2g1f2a4 The mind ≠ A computer
  • 10-2g2c1d Computation is nothing more than an aid to communication
  • 10-2g2c1e What makes humans unique is not computational ability

A rough approximation is enough

• Work with a range of possibilities (p. 3)
  • 10-2e8 Reasoning about causes and effects is reasoning about variants of the causes and effects. What would’ve happened. How it could’ve been otherwise.
• Intrinsic value approach is the only logical approach (p. 3) 
  • 13-5b2k There is no such thing as mispricing, at least objectivelyrevisit

3. The Value of a Business

A business is similar to a bond but there are some important differences

• Bond ≠ Equity (p. 4)
  • E.g., the quality of management affects the bond coupon only rarely
    • 13-5b2e There is no substantial difference between debt and equity, at least in the evenly rotating economy
    • Revisit Ayache’s argument on CBsrevisit

Book value is almost unrelated to value

• Book value doesn’t matter, it’s per-share intrinsic value that matters (p. 4)
  • See Henry Singletonrevisit
• Any investment (intrinsic value calculation) must be calculated using its excess in comparison with some other possible investment (p. 5)
  • The street standard is to use “risk-free” interest rate
    • 13-4d5b There is no risk-free interest in the free market
      • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people

And so are a lot of other yardsticks

• The likes of dividend yield, PER, PBR, growth rates per se don’t matter (p. 5)
• Discounted-flows-of-cash is what matters. Volatility doesn’t matter. (p. 6)

Cash flow from a business or “owner earnings” is after capital expenditures

The tooth fairy doesn’t pay for capital expenditures

• Always subtract capex (p. 6)
  • 13-5d3 Capital per se is not permanent

Watchout for optimistic accounting and “accounting maneuvers”

• Earnings is arbitrary (p. 6)
  • There is no objective number.
  • 1-1a2e11 Nothing objectively represents the represented

Watch out for managers who seduce you with fancy predictions

• Know what to measure, otherwise you might end up making up the number (p. 7)
  • 5-2a0 Know what to measure
  • 5-2a2 What gets measured gets managed

4. Return on Tangible Invested Capital Reflects the Cash Flow Generating Characteristics of the Business

• Goodwill is that excess mentioned in (p. 5) capitalized (pp. 8-9)
• Return on invested capital depends on sales, cost, and the amount of capital required (p. 9)

5. Business Characteristics: The Great, the Good and the Gruesome

• Don’t invest in companies signaling DMU (see., e.g., 5-C)
• Inverted: pricing power is essential in inflationary environment (i.e., in our times)
  • Consumer franchise is the key to pricing power, not production cost
    • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
    • A business can be killed by poor management—a franchise can withstand poor management (p. 15)
    • Being the low cost producer can protect you during downturns—but in itself doesn’t offer any further upside
      • Of course, it can translate into being the brand (e.g., see Jeff Bezos and Sam Walton)revisit

A. The Greatrevisit

• Being the low cost producer or having the brand can function as barrier to entry for others (p. 11)
  • RUL3 - Create something, or become someone, that is hard to duplicate (‘Barriers to entry’)
  • The best is being the low cost producer and have the brand
    • Elaborate the relation between the two (e.g., see Jeff Bezos)TODO
• Try to compete with that business in your mind (p. 11)
  • Relate with argue-against-your-own-idea-better-than-the-opponent memos and notes.
    • 3-1a3 Multidisciplinary thinking is the most realistic thinking
    • 3-1c3c3a1 Don’t be so attached to anything because almost everything is contingent. Assume no self.
    • 10-2g1j A good explanation explain more than what they were originally designed to
  • Relate with let-the-ideas-die-in-your-stead notes
    • 9-4b3b1 Popper - ‘We let our ideas die in our place’ (another difference between memes vs genes)
• Ask: does it have any close substitute? (p. 11)
  • 13-9a All goods are somewhat substitutable for one another thanks to money
  • 13-9b1 The closeness of the substitution does not exist objectively, but only subjectively in the minds of consumers
• The best protection against inflation is a great business (p. 11)
  • Challenge this, especially in light of Bitcoinrevisit
• Businesses needing not much in tangible assets are hurt the least by inflation (p. 12)
• See’s had minimized need for tangible assets (operating funds) because it was sold for cash and production cycle was short so didn’t have inventory issues (p. 12)
  • 2-1a3.1 ‘Feedback loops’ - Iterate. The more and quicker the better.
    • Also see Lachmann (pp. 160-161 in particular)
• Reputation creates value for See’s (and not production cost) and is the source of Goodwill (p. 13)
  • Viz., the source of Goodwill (premium) comes from the upside potential which comes from the brand (and less from being the low cost producer—although it does provide margin of safety during downturns, which is much needed in times of crisis and may explain the premium as well)revisit
  • Ask Microsoft or Google (p. 13)
    • 3-1c3c3b Wealth = Measurement (work with a small group) + Leverage (develop new techniques and its value is multiplied by all the people who use it)
    • 5-1b1b1a1 Things can become easier the more complexity you have (Network effects = Power-law)

B. The Good

C. The Gruesome

• Sugar isn’t differentiated (p. 15)
  • Unless someone does itrevisit
    • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
• Nothing fails like success in commoditized businesses (p. 16)
• In commoditized businesses, an economic decision which makes sense individually isn’t economic at all when considered collectively (p. 17)
  • Only consumers enjoy the benefits of the product—but remember that the capital were better invested elsewhere—ultimately, no one really benefits in DMU environment (i.e., in no knowledge creation environment)
    • If the division of capital (see Lachmann) relates to creating different production processes, then the more is different might be true in significant sense—the more connection and configuration might indeed imply new knowledgerevisit
• Get out leaking boat (p. 19)
  • Leave unpromising battlefield
    • 2-1b3 Play different games. Avoid competition.
    • 2-1b4 Not fighting can win you the battle
  • See Marc Andreessen
• Turnaround seldom turn and usually takes longer (p. 19)
  • 2-1a0c1 ‘Failure comes from a failure to imagine failure’
  • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run

D. Other Tough Businesses

• Tech is usually unpredictable, and only few will win big (p. 21)
  • 2-1a1a4a ‘Probabilistic thinking’ - Do not assume miracles!
  • But in the greater scheme of things, even if your expectations turn out to be wrong and you end up doing worse than “the average” it’s not the end of the world—because as long as there’s progress going about you might end up richer in the real sense of the word.
    • To associate the former with being poorer assumes a zero-sum game in a static environment—unfortunately a prevalent assumption.
      • Of course when you are wrong and the way you are wrong hurt you (i.e., if you take stupid risk—wrong wrongly, as it were), you will be poorer both in nominal and real terms.
    • Instead what you have to understand is the non-linear impact from knowledge creation: a man can change the world and himself be very rich, but at the same time his invention can benefit the society as a whole—the game is positive-sum where there is knowledge creation.
      • Just that such “benefit” cannot be quantified meaningfully, since knowledge creation literally changes the game.
        • Metrics to measure such non-linearity is probably better understood as our attempts to capture its game-changing nature (e.g., see Elie Ayache).revisit
• Growth has its limits (p. 21)revisit

E. On Accounting Goodwillrevisit

• On the difference between a good business and a good purchase
  • It clearly states how a company with good Plan Structure doesn’t necessarily mean a good one to have in your Portfolio Structurerevisit
    • 3-1a4b2b What is smart at one price is dumb at another
    • 3-1c3c0 Ideas have timing
    • 4-1a4b6b When ideas are exposed to various contexts (i.e., different people-place-time) they often find unexpected match. Ideas have timing.
    • 12-1e4 Nothing is objectively and independently good
    • 13-4d4e All the consumer has to do is to think about himself—in contrast, the entrepreneur (e.g., producer, investor, operator) is primarily about others
  • His emphasis to exclude Goodwill when evaluating the business makes sense especially in light of Lachmann’s framework—because only then can the analysis clearly captures the soundness of the company’s Plan Structurerevisit
    • Buffett meets Lachmann
  • But when you are buying the business as an investment, then relevant return is within the framework of your own Portfolio Structure—here, what matters is how much you actually paid for the expected returns—since you will be paying for the Goodwill, amortizing Goodwill is like pretending you only partially paid for the business each yearrevisit

F. The Key Factors for Success (or Harm) and their Predictability

6. Past Results as a Guide: Sometimes Useful and Sometimes Dangerousrevisit

• Advertisers preferred the paper with the most circulation, and readers tended to want the paper with the most ads and news pages—Survival of the Fattest (p. 29)
  • 5-1b1b1a2.1 Network effect means scaling increasingly
• Have fun, then it will compound, then you widen the moat (p. 31)
  • 2-1a6c ‘Inertia’ - In most ordinary moments the situation thinks for us, and these seemingly insignificant decisions compound.
  • 3-1a4b1.3 Your circle of competence can be widened, deepened, made clearer
  • 5-1b4c Exponential growth feels flat in the beginning, precisely why it’s worth making an extraordinary effort to get it started. You can also follow the Fun Criterion (the latter likely exhausts the former). Consistency is the key.

7. The Importance of Trustworthy and Talented Management

Stick to proven management with a lot of integrity, talent and passion

• 1-2f1b9 Repeat what works
• 2-1a7b Work in a field you have both a natural aptitude for and deep interest in. It should become increasingly interesting as you learn more about it.

Culture countsrevisit

• 1-1a2e5 Cultures nurture minds

Existing cultures are hard to change so avoid situations where you have to change people

• 9-1b You can’t really transfer your knowledge to others, because each knowledge has to be created individually

One doesn’t need an MBA to be talented

What management does with the cash is very important

• Ask: who’s allocating the capital? (p. 34)
• In Lachmann’s parlance, the Portfolio Structure must account for the portfolio companies’ management ability in managing the Plan Structure (and often the Plan Structure itself includes capital allocation as in the case for Berkshire with Buffett). (p. 34)revisit
  • Inverted: can the Control Structure be made such that the Portfolio Structure directly corresponds to the Plan Structures? Put simply, are holding companies (e.g., Berkshire) desirable?revisit
    • Without holding companies, one cannot delegate capital allocation responsibility—to that extent it is not necessarily the case that the Portfolio Structure strictly corresponds with portfolio companies’ Plan Structures. Getting rid of holding companies is similar to getting rid of derivatives (see Elie Ayache).
      • 1-1a2e11 Nothing objectively represents the represented
    • Is this where smart contracts can make a difference—because each code is dedicated to a function?revisit
      • But smart contracts can be as complex as one desires—similar to open sourced AIs
        • 9-4c1 If you can’t write about it, you can’t code it. If you can’t program it, you don’t understand it.
      • The possibility for upgrades are always thererevisit
        • And the discussion around upgrades happens outside the relevant code base
          • 5-1b1a2c Contingency cannot be exhaustively accounted for, because that amounts to predicting minds and knowledge
      • If smart contracts can be integrated into Bitcoin (e.g., OP_CAT), what are the implications?revisit
        • Or what does it mean to own ETH?revisit

Focus on the three questions that truly count

• First, does the company have the right CEO? Second, is he (or she) overreaching in terms of compensation? Third, are proposed acquisitions more likely to create or destroy per-share value? (p. 35)
  • 2-1a0c1d1 Focus on the few variables

8. The Importance of Clear Yardsticks to Judge Management Performance

Don’t automatically be impressed by higher earnings

• 1-1a2e11 Nothing objectively represents the represented

When things don’t work some change the yardstick

• 5-2a0 Know what to measure

Beware of those who explain away bad results by using “except for”

• 2-1d ‘Ecosystem’ & ‘Thermodynamics’ & ‘Double-entry bookkeeping’ - Everything is connected, there is no free lunch

Or blaming it on their long-term focus

• On the short-run and long-runrevisit
  • 2-1a7a3 Ben Graham - ‘Markets are a voting machine in the short term and a weighing machine in the long term’
  • 3-1a4 Explanatory means it will span across ‘boundaries’
  • 3-1d6c Amara’s law modified - we underestimate the importance of consistency in the short-run, but overestimate in the long-run
  • 5-1b4 Be prepared to deal with short-term nonsenses, but know what you’re focused on in the long-run and stay optimistic
  • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run
  • 5-1b4c1c Align your short-term reward with your long-term vision
  • 7-1a2a2 Get ahead in the short-run, then in the long-run
  • 10-2e4 Other times (in ‘our universe’) are just special cases of other universes. There is no demarcation between other times and other universes in the multiverse.
    • 10-2e6 Any theory must account for the meaning of ‘the future’ and ‘the past’ because both are arbitrary abstractions and do not exist objectively in reality

9. Corporate Governance

• Skin in the game (p. 39)
  • 6-3z A world without ownership is a world with less creativity and human flourishing
• In Lachmann’s parlance, Buffett’s owner-capitalism can be construed as an argument for how the Control Structure (directors—取締役) should be aligned with the Portfolio Structure (owners—株主) (p. 40)revisit
  • Directors ≠ Managers
    • The former functions as a check on the latter (社長/CEO)—on daily basis the latter decides company matters (i.e., the Plan Structure)

10. Owners and Management

• Common goals and a shared destiny make for a happy business “marriage” between owners (the Portfolio Structure) and managers (the Plan Structure) (p. 41)
  • 6-3b4d Community first, monetization later; morality first, money second; missionary over mercenaryrevisit
• Incentives work regardless of the scale (p. 41)
  • 2-1a6 ‘Incentives’ - Incentives drive (almost) everything. Understand your incentives.
  • 5-1b1a1c3 The interoperability law means we can do away with dynamical laws because the former is scale independent
  • 10-2g1g Scientific knowledge implies location-time-scale-independent applicability
• “Hire well, manage little” code (p. 41)
  • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
  • Go for the best, then you will have less problems
    • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people

Just follow the Golden Rule (p. 41)

• Imagine being in the other’s shoe
  • 2-1a0b2 ‘Relativity’ - Look at the problem in as many ways as possible. You might as well find new problems.

And how can I hold someone responsible if I tell them what to do?

• Most managers are happiest when they are left alone to run their businesses (p. 42)
  • Berkshire has its own mini free market, as it wererevisit

Often I get a better management result through decentralization and non-control

• This approach produces an occasional major mistake that might have been minimized through close operating controls—but it also eliminates large layers of costs and dramatically speeds decision-making. Because everyone has a great deal to do, a very great deal gets done. (p. 42)
  • 5-2b4a1 小局における矛盾も大局を鑑みると決して矛盾ではないという可能性
    • Remember the Navy anecdote (from pp. 125-126)
  • 7-1b2b1 The best is seeing the front by yourself, because inexplicit and unconscious ideas exist between heads not within them
  • 9-1b You can’t really transfer your knowledge to others, because each knowledge has to be created individually
• Run your business as if you own 100% of it, as if it’s the only asset you will ever have, as if you can’t sell it for at least a century. (p. 42)
• Managers should not let any of their decisions be affected even slightly by accounting considerations. (p. 42)
  • What counts >>> How it’s counted
    • 5-2 What counts cannot be counted

11. Management Compensation: I Get What I Reward For

• At Berkshire, management (i.e., Buffett and Munger) has the same interest as owners (shareholders). (p. 43)
• Avoid capricious incentive structure (p. 44)
  • An option holder has no downside risk, hence will not be a part of good incentive structure (p. 46)
  • Ask: is the current incentive structure “capricious”?
  • Ask: would rewarding XXX based on the performance of YYY capricious?revisit

12. Mergers and Acquisitions: Dumb Acquisitions Cost Owners Far More than Most Other Things

• Demonstrated consistent earning power >>> Projection or turnaround (p. 48)
  • 5-2c2b The Lindy effect
• Again, always think about the alternatives (e.g., what you’d get instead if you’d opted for passive investment) (p. 49)
• Per-share intrinsic value >>> Reported number (p. 50)
  • You have to guess the former due to its subjective nature—reported number is open to interpretationsrevisit
    • Fundamental >>> Price quotations
      • 2-1a7a5 Build day by day unless anything fundamental (‘the core’) changed. Superficial-uncontrollable criteria (e.g., share price) matter less.
    • Knowledge >>> Looks
      • 10-2g1f3 We can only figure out what they know by what they do (‘performance’), because we can never directly study what people know (‘competence’). To assert that we can is a common error in thinking.
• Stick to what works. Focus. (p. 50)
  • 1-2f1b9 Repeat what works
    • The smart contracts are by design resistant—but they cannot adapt.revisit 
• Often the acquisitions benefit everyone except the shareholders of the acquirers (p. 51)
  • Relate with activistsTODO
• Per-share progress >>> Size (p. 51)
  • See Henry Singleton
• Why do you have to pay premium for acquisitions? Why not buy in market? (p. 51)
• In a trade what you give up is as important as what you get (p. 52)
  • 13-1a3.0 Return is about how much, when you expect to get it, how sure you are—in comparison with other possible returns
  • 13-1a3.1 The concept of cost must evoke the multiverse
• In more than fifty years of board memberships never have I heard the investment bankers (or management) discuss the true value of what is being given (p. 52)
  • Markup what’s been given up as well—don’t leave your issued shares at market price while marking up the target stock
    • 2-1a1a1a ‘Self-preservation’ - Don’t trigger your biological defaults (defense mode)
• If you wouldn’t sell 100% of your business on the same basis you are being asked to sell part of it, why is it smart to sell a portion? (p. 53)
  • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
• The don’t-give-up-more-than-what-you-get rule applies for any transactions (p. 53)
• Deals never fail in projections (p. 54)
  • Mike Tyson: “Everyone has a plan until they get punched in the face”
• Earnings simply don’t move smoothly (p. 54)
  • 5-1b4 Be prepared to deal with short-term nonsenses, but know what you’re focused on in the long-run and stay optimistic
• Why do potential buyers even look at projections prepared by sellers? Remember the man with an ailing horse (p. 55)
  • Independent thinking >>> Imitations
    • 2-1a1a2 ‘Bias from incentives’ - Explicate your culture-incentive as much as possible
    • 7-1a4b Understanding the measurement-constraints amounts to understanding the system-incentives. That is, creating explanations.

13. A Few Management Issues

• Imitation has a limitation (p. 56)
  • Henry Singleton: “If everyone’s doing them, there must be something wrong with them”
• No yo-yo approach—do what makes sense for the customers, and never add the unneeded. (p. 59)
• What needs to be reported is data that helps financially-literate readers answer three key questions: (1) Approximately how much is this company worth? (2) What is the likelihood that it can meet its future obligations? (3) How good a job are its managers doing, given the hand they have been dealt? (p. 59)

14. How to Reduce Risk: Prevention is Better than Cure

• Keep it simple (p. 61)
  • 2-1a0c1d1 Focus on the few variablesrevisit
• Do the basics well (p. 62)
  • 3-1a3.1 Get the basics well. Relate to the basics. Do the basics well.
• A chain is no stronger than its weakest link—look for mono-linked chains (p. 62)
  • 2-1e Everything is connected in a complex way
  • 6-8 Train your weakest link
• If it’s not worth doing, it’s not worth doing well (p. 63)
  • Only work on what matters—always ask, then what?
    • 2-1b2b ‘Second-order thinking’ - Solve the root cause of a problem (prevention) and not symptoms. Be smart-lazy.
    • 2-1b2b1.1 If it’s not worth doing well, it’s not worth doing at all
• Defining what you don’t know is essential in investing as well (p. 64)
  • 3-1a4b1.2 Define and stay within your circle of competence
• Optimism is the enemy of rational buyer (p. 66)
  • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best peoplerevisit
• Simply being a contrarian is easy and doesn’t count (p. 67)
  • 1-2f1b3a Deutsch - ‘Nor is a person capable of making progress merely by virtue of being willing to drop a theory when it is refuted; one must also be seeking a better explanation of the relevant phenomena. That is the scientific frame of mind.‘
• When it’s raining gold, get a bucket (p. 67)
• Some things just take time—be patient (p. 69)
• To finish first, you must first finish (p. 70)
  • 2-1b2b2 ‘Multiplying by zero’ - Be risk-prone but avoid ruin at all cost
• Only cash can meet the payment (p. 71)
  • 13-8a2.1 Money is the present good par excellence
• Cash is the gun to shoot rare fast-moving elephants (p. 71)
  • 13-8a2.1 Money is the present good par excellence
• Tight credit environment is the best opportunity for acquisitions—not when there’s easy money (p. 71)
• CP (Commercial Paper) and MMF (Money Market Fund) ≠ Cash and Money (p. 72)
• Each subsidiary should manage their own financing—if each was dependent on the (rich) parent company it will result in sloppy decisions (p. 72)
  • Replace subsidiary with child—the same still applies
• What’s good for investor ≠ What’s good for broker (p. 73)
  • See Li Lu’s comment on turnover and on trading in and out frequently
• “Whose bread I eat, his song I sing” (p. 74)
  • 2-1a6 ‘Incentives’ - Incentives drive (almost) everything. Understand your incentives.
• What the wise do in the beginning, fools do in the end (p. 74)
  • 10-2g1f Imitation = limitation (imitation has limitation)
  • 12-1e0 Everything changes
• “The other guy is doing it so we must as well” is the trouble (p. 75)
  • See Henry Singleton
• Profitability >>> Volume and market share (p. 75)
  • 5-2a0 Know what to measure
  • 5-2a2 What gets measured gets managed
• Slack (occasional) >>> Producing bad businesses (p. 76)
  • 4-1a4b2d ‘Tendency to want to do something’ - Don’t get paid for work, but for being right.
• Identify businesses to which external surprises will have little effect (p. 77)revisit
  • 5-2c2b The Lindy effect
  • 5-2c2b0 The truer and deeper the idea is, the more likely it will survive criticism, change in society, and withstand unpredictable consequences brought about by itself
  • 5-2c2b1 Focus on the fundamentals, on the deeper ideas closer to abstract knowledge, on what matters, and build yourself (including technology) around it
• Predictable long-term future >>> Short-term uncertainties (p. 77)
  • Remember that the latter is the general condition of the multiverse
    • 13-1a1 The uncertainty of the future must be true because the contrary would completely negate the possibility of action
    • 13-1a2 The omnipresence of uncertainty introduces the ever-present possibility of error in human action
    • 13-8a2 The demand for money stems from fundamental uncertainty about both the future environment and the future-self
• Ignore Mr. Market as necessary (p. 77)
• Mr. Market is there to serve me, never to guide me (p. 78)
• Operating results >>> Price quotations (p. 78)
  • Because any amount of money can do the job of moneyrevisit
  • Because the soundness of the Plan Structure means the ability to generate cash
    • 10-2g3d1 Humans do stupid things because we can guess and create meanings. Our ability comes with a great cost of potentially doing very (infinitely) stupid things.
    • 13-2a The supply of capital goods enforces narrower limits than knowledgerevisit
• In the short-run the market is a voting machine wherein you only need money—in the long-run the market is a weighing machine (p. 78)
  • In the long-run, the Portfolio Structure will reflect the Plan Structure, just that you have to stay in the game (see Lachmann).revisit
    • 5-2c2b0 The truer and deeper the idea is, the more likely it will survive criticism, change in society, and withstand unpredictable consequences brought about by itself
  • But how (and why) does the long-run kick in? Does this happen necessarily? Is focusing on what’s necessary somewhat meaningless given the general condition of the multiverse is change? Maybe the rule of thumb is enough here?revisit
    • Lachmann argues that this happens because humans transmit knowledge to each other throughout the market economyrevisit
      • In the long-run, market is weighing machine because it does solve capital inconsistency
        • 2-1a7a2 Assets with actual substance or weight have the best prospects over the long termrevisit
    • Maybe the ABCT does offer why this happens necessarily—but doesn’t ABCT have its own problems?revisit
      • E.g., 13-5b2j There is no natural rate of interest in reality

15. Sometimes Mistakes are Made

• The Noah rule and prediction (p. 80)
  • 1-1a5b3.1 What counts is the payoff from success—and not how often you are right
  • 4-1a5 Don’t get obsessed with the failure rate, because what matters is where it’s going and not where it came from
• Ben Graham: “Investment is most intelligent when it is most businesslike” (p. 81)revisit

The Outsiders (see Henry Singleton)

The Investor as CEO

• His contrarian insight was that companies with low capital needs and the ability to raise prices were actually best positioned to resist inflation’s corrosive effects. (p. 173)
  • Via pricing power (whose key is consumer franchise—the brand)
• Buffett’s exceptional results derived from an idiosyncratic approach in three critical and interrelated areas: capital generation, capital allocation, and management of operations. (p. 178)
  • Viz., the Plan Structure, the Portfolio Structure, and the Control Structure
• Buffett developed a distinctive approach to the insurance business, which bears interesting similarities to his broader approach to management and capital allocation. (p. 178)
  • What specifically is this similarity which pervades all of Buffett’s approach?revisit
• A willingness to avoid underwriting insurance when pricing was low, even if short-term profitability might suffer, and, conversely, a propensity to write extraordinarily large amounts of business when prices were attractive. (p. 179)
  • Similar to Singleton’s approach to buybacks and acquisitions
• Buffett: “Charlie and I have always preferred a lumpy 15 percent to a smooth 12 percent return.” (p. 179)
  • 2-1b2f ‘Equivalence’ - Reality doesn’t care genealogy. Solving problems is what matters. How it’s done matters less.
• In both insurance and investing, Buffett believes the key to longterm success is “temperament,” a willingness to be “fearful when others are greedy and greedy when they are fearful.” (p. 181)
• Buffett, by virtue of his prior experience evaluating investments in a wide variety of securities and industries, was a classic fox and had the advantage of choosing from a much wider menu of allocation options, including the purchase of private companies and publicly traded stocks. (pp. 181-182)
  • Why he can go for the best
    • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
• A critical part of capital allocation, one that receives less attention than more glamorous activities like acquisitions, is deciding which businesses are no longer deserving of future investment due to low returns. The outsider CEOs were generally ruthless in closing or selling businesses with poor future prospects and concentrating their capital on business units whose returns met their internal targets. (pp. 182-183)
  • Cut the bullshit fast. If wrong, admit it. Fold early. Then come up with better ideas.
    • 1-2f1b3a Deutsch - ‘Nor is a person capable of making progress merely by virtue of being willing to drop a theory when it is refuted; one must also be seeking a better explanation of the relevant phenomena. That is the scientific frame of mind.‘
    • 4-1e1 Loss aversion - e.g., the prospect of competitor buying you, and having have to acquire you later at higher cost, are the two biggest concerns which motivate potential acquirers
    • 9-2a3b0.1 ロスは速攻切る。勝ちポジションは徐々に積み上げていく。損益に対して生じる非対称な行動心理を予め計算に入れておくこと。
• Buffett: “We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it.” (p. 184)
  • I.e., you will watch the basket
    • 2-1a0c1d1 Focus on the few variables
• The two portfolio management tenets—a high degree of concentration and extremely long holding periods—combine to form a powerful and highly selective filter, one that very few companies pass through. (p. 185)
  • The each is implied in the other.revisit
  • The subsequent low turnover which is characteristic of Buffet doesn’t mean he offers less data points.revisit
    • 10-2g1f3 We can only figure out what they know by what they do (‘performance’), because we can never directly study what people know (‘competence’). To assert that we can is a common error in thinking.
      • 9-4b3b1 Popper - ‘We let our ideas die in our place’ (another difference between memes vs genes)
  • Taleb’s comment on Soros vs Buffett is interesting given that Buffett also admits to himself that he doesn’t know a lot of things.revisit
• The majority of Berkshire’s major public market investments originated in some sort of industry or company crisis that obscured the value of a strong underlying business. (p. 187)
• Buffett: “We don’t try to do acquisitions, we wait for no-brainers.” (p. 190)
  • RUL3 - Simplify the problem by deciding the “no-brainer” questions first
• Buffett came to the CEO role without any relevant operating experience and consciously designed Berkshire to allow him to focus his time on capital allocation, while spending as little time as possible managing operations, where he felt he could add little value. (p. 190)
  • QUE5 - What’s the best thing you could be working on, and why aren’t you
  • 2-1c1 ‘Comparative advantage’ - If others can do it, let them
  • 2-1c1a1 Companies will outsource everything that isn’t their value proposition. To build successful B2B company, simply be the outsource.
  • The process of picking a great operator and becoming one is not necessarily the same—Buffett does the former by sticking with the best who are already proven:
    • 1-1a5b4 ‘Release early and often, delegate everything you can, be open to the point of promiscuity’—this is more for the latter (i.e., how to figure out the niche en route to becoming a great operator)revisit
    • 1-2f1b9 Repeat what works
    • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
• Buffett: “Hire well, manage little”
  • Inverted: you don’t have to manage anything when you hire the best.
• Berkshire’s many iconoclastic policies all share the objective of selecting for the best people and businesses and reducing the significant financial and human costs of churn, whether of managers, investors, or shareholders. (p. 194)
  • Buffett’s way of always going for the best pervades his approaches to the Plan Structure (managers), the Portfolio Structure (investors), and the Control Structure (shareholders).revisit
  • 2-1b2 Play in different time horizon. That is, in the long-run.
  • 13-1a3.0a Always go for the best—work on the best project, work in the best industry, work with the best people
• To Buffett and Munger, there is a compelling, Zen-like logic in choosing to associate with the best and in avoiding unnecessary change. (pp. 194-196)
  • Because it’s tough to beat the bestrevisit

Other Sources

The Tao of Buffett (Founders #101)

• Aim businesses that’s predictable in 10-15 years (different inversion of Amara’s law)
  • E.g., chewing gum (27:00~)
  • Ask: what’s not going to change?
    • 5-1b4a Amara’s law - we expect too much in the short-run, but too little in the long-run
    • 5-2c2b The Lindy effect
• Public opinions suck, don’t just build what people want
  • Aim for specific customer segment
    • 4-1a3b Go to specific places to get specific feedbacks
    • RUL3 - Live in the future and build what seems interesting
  • Ask: what are rich and nerds doing?
    • 5-3c Knowledge is irreversible, and can only go from private to public
    • QUE5 - Don’t aim for the average — Ask ‘What is rich doing’ ‘What are nerds doing’
  • Look for the edge
    • 1-1a5a2 Good writing happens at the edge of explicit-inexplicit or explicit-unconscious — that is, via surprises.revisit
• When you are sloppy in one area, you are probably sloppy elsewhererevisit
• Writing is the best help for thinking
  • 9-4c Someone who never writes has no fully formed ideas about anything nontrivial

Bevelin on Buffett (Founders #202)

• Steve Jobs intensely studied Disney
  • Only Disney was making money lucratively in animation business, and the recipe was hidden
• Growth is easy to measure, durability isn’t (~27:00)revisit
  • 2-1b2 Play in different time horizon. That is, in the long-run.
  • 5-2a0 Know what to measure

The Essays of Buffett (Founders #227)

• Bruce Lee: “It is not daily increase but daily decrease, hack away the unessential. The closer to the source, the less wastage there is.”
• A good business run by a good manager is rare.
• It’s all about free cash flow.
• Watch the basket.
  • Focus. Concentrate.
    • And you will when you concentrate instead of diversifying.
      • 2-1a0c1d1 Focus on the few variables
• When dumb money acknowledges itself as such, it ceases to be dumb money.
  • Confucius: “Real knowledge is knowing one’s ignorance”
  • Buffett: “Risk comes from not knowing what you are doing”
• Avoid dragons. No need to slay them.
• Money provides margin of safety.
  • 2-1b2g ‘Margin of safety’ - Be redundant and resourceful
• Fees never falter
  • Cost can be controlled (e.g., see James J. Hill)
• Buffett’s pitch (1:35:00)
• There would be no auto industry with horses

Bevelin on Buffett and Munger (Founders #286)

• Relate (as well as create)
  • The former can be as powerful as the latter
    • Avoiding bullshit also as effective
• Reading lets you connect with other instances
  • 10-1a5 Digitizing history means explaining each fork as contingent points (the could’ve been) for the history around an idea. History is the Idea Maze, and must be created symbolically (never non-digitally nor indexically) by the individuals.
• You can’t change the behavior of others unless initiated by themselves spontaneously
  • 9-1b0 Knowledge (both explicit and inexplicit) is created individually. You don’t say “I took it from him.” You can’t blame “he took it from me.”
  • Intense curiosity drives everything
    • 2-1a0c1c Purpose (and curiosity) beats for-profit
  • If the person is not interested, it wouldn’t work
    • Missionaries make the best product—not mercenaries
      • 6-3b4d Community first, monetization later; morality first, money second; missionary over mercenary
• Cash is hedge
  • Stay in the game
  • Life gets you out of your weakest link (e.g., leverage)
  • Implication for market reform
• The world is driven by envy, not anger
  • Munger: “The world is not driven by greed, but envy”
    • relate with relativity note and social media notesrevisit
  • Time is the best filter
    • 4-1a4b2b3 Time will tell because time can de-contextualize seeming necessities
• Sol Price’s membership model
  • He wanted to avoid certain customers
    • 2-1b2b1 ‘Inversion’ - Avoid stupid obvious bullshit you’d regret in the future
    • 4-1a3b Go to specific places to get specific feedbacks
    • 4-1a5a If you properly set up the conversation you only need a handful of conversations for insights (e.g., via client slicing and segmentation)
• No masterplans
  • Keep reacting
    • 5-1b2 Don’t invest in prediction, because knowledge is inherently unpredictable
• Communicate who should do what when and why
• Interest rate to asset prices is what gravity is to apple (48m)
• Brand matters
  • 2-1a6b ‘Pavlovian association’ & ‘Social proof’ - Understand the arbitrary association formed within your culture. There are no pure indexes for humans.
• Learning is about changing your behavior, not memorization (53m)
  • In other words, effect in the real world
    • 10-2g2e5 Abstractions exist and affect physical objects. Knowledge makes enormous difference in the world.
• Human nature never changes (55m)
  • Challenge thisrevisit
• Customer is the boss—just cut out what irritates them (1h1m)
  • 2-1b2b1 ‘Inversion’ - Avoid stupid obvious bullshit you’d regret in the future
• Play with good players—the story of Eddie and Yankees (1h5m)
• Look for weak competition—competence is relative concept (1h6m)
  • 12-1e4 Nothing is objectively and independently good

400 pages of Buffett and Munger (Founders #380) ~1h7m

• Yogi Berra on observing (9m)
• Cut envy
• Deserve what you get
• On adjacent opportunities
  • 9-1a2 Most fairly good ideas are adjacent to even better ones
    • Geico saw how effective Google ad was
    • Rockefeller looked up to Jay Gould who’d seen opportunities in telco when operating in railway industry
• Long-term is where the money is—and the world is extremely short-term focused (14m)
  • 3-1c1d6 Media grabs what’s easily grabbable (e.g., short-term over long-term development)
  • 5-1b4 Be prepared to deal with short-term nonsenses, but know what you’re focused on in the long-run and stay optimistic
• Read Titan (a book on Rockefeller) (21m)TODO
  • Rockefeller emphasized the quality of information over speed
• Build business around what you do naturally
• You wouldn’t know if a guy who hits .300 is good or not unless there’s some background knowledge
  • The same applies to American corporations and their histories (29m)
• Not buying Belridge because Munger didn’t have “enough” cash (32m)
• Not paying attention to what other people think should apply to investment (i.e., to price quotations) (35m)
  • Jeff Bezos’ story on Amazon’s stock price going down from $103to$6
• Share what’s important to you
  • 2-1b2e ‘Algorithms’ & ‘Replication’ - Share your problem-situation as clearly possible, so that others can make decisions without you on your behalf (i.e., multiply)
• Variance in listed companies’ CEOs ≠ that of Olympic team
  • If you find good ones, stick with them, because they are rare.
    • 3-1c2e4.1 ‘Scarcity’ - Knowledge is rare but never a scarce resource
• Isadore Sharpe doubling down on ads when everyone was cutting it down because they saw it as a cost.
• You teach something, then they will come directly to you to offer something. Be individual opportunities driven, just like Napoleon was.
  • Projects >>> Planrevisit
• Be easy to interface with (49m)
• Think about and focus on what counts for the business, and eliminate everything else.
• Specialization = Focus = Play your game (53m)
  • e.g., Todd Graves (CEO of Raising Cane’s Chicken Fingers)
• If you’re not sure if it’s your game, it likely isn’t. Know your circle of competence.
• On internet (59m)
  • Billy Durant of GM was initially in horse carrying business
• Learning is about changing your behavior.
  • Buffett with Belridge Oil, Intel, Disney, and Amazon.
• Stay in the game long enough so lucky stuff happens—invention of new tech can somehow benefit you (1h5m)
  • E.g., marginal MLB players’ compensation went up because of TV (because the stadium got bigger with TV—spectator size went from 40k to the whole country); Coca Cola and fridge; Rockefeller and Ford.
    • If you keep changing your game you wouldn’t notice theserevisit
      • 3-1d6b Consistent style makes it easier to see whether you are making a progress or not
      • 5-1b4c Exponential growth feels flat in the beginning, precisely why it’s worth making an extraordinary effort to get it started. You can also follow the Fun Criterion (the latter likely exhausts the former). Consistency is the key.