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”
Patience and slight difference in returns make for the huge difference when compounded, so get both (p. 27)
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)
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
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)
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)
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)
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)
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
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)
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)
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)
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)
Things are often cheapest when people are fearful and pessimistic
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)
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
Be opportunistic and adapt and change when the facts and circumstances change
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)
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)
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)
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)
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)
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)
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)
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
Common sense is better than advanced math and computer models (pp. 190-192 has a summary)
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
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
The right filters conserve thought and simplify life
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)
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)
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
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
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)
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
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
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
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
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)
7. The Importance of Trustworthy and Talented Management
Stick to proven management with a lot of integrity, talent and passion
Culture counts
Existing cultures are hard to change so avoid situations where you have to change people
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).
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)
8. The Importance of Clear Yardsticks to Judge Management Performance
Don’t automatically be impressed by higher earnings
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)
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)
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
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
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
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)
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)
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.
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)
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)
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)
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)
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:
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
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