Munger indirectly preaching the importance of having win-win relationships (p. 38)
win-win might materialize in time, and isn’t necessarily instantrevisit
Who invented factor investing? A broker? (p. 39)
To quick profits, reply with quick no (p. 40)
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)
relate with don’t associate yourself with an idea or a tech notes
Again, whose bread I eat, his song I sing (p. 41)
Bevelin on investment letters
On “independent” board, board of directors (p. 41)
“Include me out” (p. 42)
Postpone yes, and say no sooner (p. 42)
Natural progression, the three I: Innovators, Imitators, Idiots (p. 43)
relate with Pierce and Everett
also with what the wise do in the beginning the fools do in the end memos
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)
Bad ideas are born good. It’s easy to push a really good idea to wretched excess. (p. 44)
relate with environments change notes
relate with check the implication from deviation between the price quotations (the portfolio structure) and the underlying business operation (the plan structure) memos
relate with I was too ahead of my time type excuse memos and notes
The crazy greed, the crazy leverage, the crazy delusions. “The more it changes the more it’s the same thing.” (p. 44)
It’s not the bad idea but a good one carried to excess that do you in (p. 44)
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).
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)
Relate with give it time and distance yourself notes (p. 64)
Improving yourself >>> penalizing others. (p. 65)
relate with stupidity notes
Envy is simply negative-sum, rule it out (p. 66)
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 comes from deciding which business you can intelligently do without (p. 68)
inversion at play
relate with membership memos and Sol Price notes
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
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)
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)
The best knows that they are playing their game (p. 74)
130 IQ guy who thinks he’s 125 >>> 180 IQ guy who thinks he’s 200 (p. 76)
the size of the circle doesn’t matter, and this is the true sense when Munger (or Buffett) says “it’s not competency if you don’t know the edge of it” (find related memos and notes).revisit
Real knowledge is knowing one’s ignorance, Confucius (p. 77)
The shoe button complex (p. 77)
relate with how being successful in one area doesn’t translate to other areas automatically notes.
Planck knowledge >>> chauffeur knowledge (p. 78)
relate with imitation notes
Beware the articulate incompetent (p. 78)
also beware the twaddler (p. 78)
relate with humans can do stupid things note.
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)
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)
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)
relate with give it time notes
Persian Messenger Syndrome (e.g., CBS and Chairman Haley) (pp. 93-94)
relate with association notes
relate with bad news get exaggerated notes (as contrast)
Just tell me the bad news; the good news will take care of itself (p. 94)
relate with take care the downside memos and notes
relate with wisdom is about prevention memos and notes
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)
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)
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)
“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)
relate with ownership notes
Five positive interactions = one negative interaction (p. 104)
A man reacts with intense irrationally to even a small loss (p. 104)
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)
relate with 主語の転換 memos
relate with focus on the few important variables memos
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)
relate with you don’t have to recover by the same way as you lost it memos
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)
relate with cost is multiversal notes
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)
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)
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
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)
relate with other keep it simple memos and notes
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)
the problem isn’t getting rich, it’s staying sane (p. 128)
You Only Have to Get Rich Once (p. 128)
First think about what happens when it goes wrong, instead of the upside (p. 130)
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)
To finish first, first finish (p. 131)
The first and second laws of thermodynamics approach applies to investing (p. 132)
All I want to know is if there are any factors that can cause ruin, and if any never go there (p. 132)
Understand the downside five to ten years from now (p. 132)
relate with Amara’s law.
Fact check quote #1098 (p. 132)
Is the upside worth it? If not worth doing it, don’t (p. 132)
On Napoleon’s mother (p. 133)
PART THREE: ON WHAT ELSE DOESN’T WORK AND WHAT DOES IN BUSINESS AND INVESTING
investment is business of capital allocation (p. 134)
on zero and negative interest rates (pp. 135-136)
check the timeline of quotes
investment is about the return, when, and how sure you are (p. 136)
what is smart at one price is dumb at another (p. 137)
outstanding business at sensible price >>> mediocre business at bargain price (p. 137)
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)
really good opportunities aren’t often and won’t last long (p. 139)
you get paid for being right (p. 140)
relate with naval
on bull market and sex (p. 141)
human behavior (of others) allows for success if you are able to detach yourself emotionally (p. 141)
on fear and greed as unpredictable diseases (p. 142)
horse and auto industry (p. 142)
relate with other memo
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)
relate with knowledge and performance notes
there are mispricings (p. 143)
relate with there is no objective mispricing memos and notes
deprival-superreaction tendency—Belridge Oil example (pp. 143-144)
ask: what doesn’t change with crypto (e.g., Bitcoin and ETH)?revisit
the law of least effort >>> change (p. 147)
relate with loss aversion notes
the meaning of understanding a business. Risk is from not understanding what you’re doing. (pp. 147-148)
relate with the first quote in /Buffett
this applies to anything (e.g., poker)
You need the moat and the knight who can widen the moat. (p. 148)
Personal thought: having a moat challenges the basic economic assumption of competition (p. 149)
Pick (or be) the low-cost producer (p. 149)
E.g., GEICO, The Nebraska Furniture Mart (p. 150)
Just take care of the customers (p. 151)
E.g., ISCAR (p. 151)
Sam Walton’s quote on the customer (p. 151)
relate with consumer sovereignty notes.
Never abuse current clients by trying to get new ones. (p. 151)
relate with iteration notes,
the general rule here applies elsewhere in life
Eliminate what irritates the customer (p. 152)
this is inversion in play.
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 essentially. Look at the pricing behavior of the product (not the stock). (p. 154)
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)
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
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)
relate with what’s not worth doing memos and notes
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)
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)
Mar 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)
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 (how doesn’t matter)
Businesses are bought for keeps (p. 178)
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?)
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)
relate with naval’s quote and relate note on redefining the game
allocate your time according to your talent (p. 182)
relate with DMU (diminishing marginal utility) notesrevisit
just pick weak competitions (p. 183)
get in the right train, and why “idiots” can get rich (p. 184)
relate with marc andreessen’s emphasis on being in the right business
buy good businesses run by good people in good places. macro headlines don’t matter—does macro headline affect your decision on marriage? (p. 186)
no rainbow without a cloud or a storm (p. 187)
relate with being greedy when others are fearful
On dot-com bubble and on changing expectations given the available facts, and why thinking like businessmen helps because often what’s been speculated is absurd. (pp. 188-189)
relate with quotes from /Holmes
the statement here clearly shows Buffett’s view that the Portfolio Structure will reflect the underlying Plan Structure
does Lachmann share the same view?
can the Portfolio Structure change the Plan Structure not temporality or on surface but substantially?
I think it does and that’s what happens in case of malinvestment caused by fiat money printing by the government
if so, what’s the implication for Buffett’s view?revisit
roughly right >>> precisely wrong (p. 189)
relate with fallibilism notes
common sense >>> computer models (p. 189)
you shouldn’t need a spreadsheet to decide (p. 190)
relate with decision should be obvious memo from (p. 138) above
people calculate too much and think too little (p. 190)
relate with what counts often cannot be counted
it’s not a competency if you don’t know the edge of it (p. 192)revisit
on one or few factors. less is often more. (p. 192)
Sandy Gottesman (p. 193)
write down your investment decision, preferably in a paragraph (p. 193)TODO
investing is about finding a mispriced gamble, and you have to know enough to decide if it’s mispriced (p. 194)
the statement here implies that nothing is objectively mispricedrevisit
relate with there is no such thing as mispricing note and refine it to there is no such thing as objectively mispricedTODO
Mr. Market >>> PnL (p. 195)
to be more precise, when your measurement criteria is PnL, then Mr. Market might dictate yourevisit
relate with other memos and notes elsewhere—you want to use Mr. Market, never to be used
the playing field (the Plan Structure) >>> scoreboard (the Portfolio Structure) (p. 196)
not where the puck is, but where it’s going (p. 196)
relate with price is fundamentally about future notes
risk is loss of purchasing power (p. 197)
why does Buffett not invest in Bitcoin?
simple stuff is generally overlooked (p. 197)
relate with simple stuff might not spread fast memo
questions to ask when investing (p. 197)
best time to get rich is in a crisis. independent thinking, financial preparation, and mental preparation. it doesn’t take brains (although you need the right basic ideas)—it takes temperament. (p. 198)
relate with cash is the gun to hunt rare fast-moving elephants memo
PART FOUR: ON FILTERS AND RULES
Get rid of the nonsense fast. if you know it’s nonsensical then don’t even think about it. (p. 201)
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 psychologyrevisit
Do this both in big picture stuff as well as when facing a problem (i.e., approach no-brainer parts first)
Edward Tuft: “The idea is to find important problems that can be solved” (p. 207)
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)
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—particularly, how what you don’t know cannot be in your value scale
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
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 they are often an obsessed fanatic).revisit
Personal thought: war, history, and ideas evolve by reconfiguration—you will lose if you associate yourself too strongly with specific configurationrevisit
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)
Reputation creates value for See’s (and not production cost) and is the source of goodwill (p. 13)
Ask Microsoft or Google (p. 13)
relate with infinite leverage memos and notes
b. good
c. the gruesome
sugar isn’t differentiated (p. 15)
unless someone does it
Nothing fails like success (in commoditized businesses) (p. 16)
in commoditized businesses, individually economic decision 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 relates to creating different production process, 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)
relate with Marc Andreessen memos and notes.
Inversion would be: leave unpromising battlefield.
Turnaround seldom turn and usually takes longer (p. 19)
relate with it takes longer and costs more memos and notes
d. other tough businesses
Tech is usually unpredictable, and only few will win big (p. 21)
Ch. 5-E is about 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
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 Portfolio Strucure—here, what matters is how much you actually paid for the expected returns—amortizing Goodwill is like pretending you only partially paid for the business each year
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)
7. The Importance of Trustworthy and Talented Management
personal thought: who’s allocating the capital for us? (p. 34)
personal thought: the Portfolio Structure must account for the management ability in managing the Plan Structure (i.e., capital allocation skill—the management’s skill in managing the Plan Structure includes their ability to manage the Portfolio Structure). (p. 34)revisit
inverted: can the Control Structure be made such that the Portfolio Structure directly corresponds to the Plan Structure?revisit
is this where smart contracts can make a difference?
can you integrate smart contracts into Bitcoin (e.g., OP_CAT)?revisit
8. The Importance of Clear Yardsticks to Judge Management Performance
9. Corporate Governance
skin in the game (p. 39)
in buffett’s owner-capitalism, 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) power—on daily basis the latter decides company matters
10. Owners and Management
on “marriage” between owners (the Portfolio Structure) and managers (the Plan Structure) (p. 41)
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)
Again, always think about the alternatives (e.g., passive investment) (p. 49)
Again, per-share intrinsic value >>> reported number (p. 50)
it’s the same with fundamental >>> price quotations, or knowledge >>> looks, just that you have to guess for all of the former due to its subjective nature.revisit
Often the acquisitions benefit everyone except the shareholders of the acquirers (p. 51)
relate with activists memos
Per-share progress >>> size (p. 51)
Why not buy in market? (p. 51)
In a trade what you give up is as important as what you get (p. 52)
Markup what’s been given up as well, if that thing is undervalued don’t markup arbitrarily, let alone marking up the target stock while leaving your issued shares at market price. (p. 52)
If not worth selling at all, then it’s not worth even a small part of it (p. 53)
relate with if not worth doing well it’s not worth doing at all memos and notes
The don’t-give-up-more-than-what-you-get rule applies for any transactions (p. 53)
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
remember that the latter is the general condition of the multiverse
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)
this makes sense because any amount of money can do the job of moneyrevisit
also makes sense because here the emphasis is on the soundness of the Plan Structure
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)
personal thought: in the long-run, the Portfolio Structure will reflect the Plan Structure—just that you have to stay in the game.revisit
but how (and why) does the long-run kick in? does this have to 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
maybe the ABCT does offer why this happens necessarily—but doesn’t ABCT have its own problems?revisit
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 >>> plan.revisit
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 (chicken fingers guy)
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)—he was in horse carrying business initially
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