Tren Griffin - Zitate und Weisheiten

Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and Socrates said the same thing.

Part of that trained response is to avoid distracting noise made by people who do not understand investing or who have a financial interest in keeping you from understanding investing.

Graham value investors are focused on the present value of the cash that will flow from the business during its lifetime and whether the business generates high, sustained, and consistent returns on capital.

focus on what they know now and not where they are going because, rather obviously, your data about the present is extensive while your data about the future will always be zero.

By sticking to investing activities that are easy, avoiding questions that are hard, and making decisions based on data that actually exists now, the Graham value investor greatly increases his or her probability of success.

Graham’s value investing system is based on the premise that risk (the possibility of losing) is determined by the price at which you buy an asset. The higher the price you pay for an asset, the greater the risk that you will experience a loss of capital. If the price of a stock drops, risk goes down, not up.

You’ve got a complex system and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there’s no precise numbering you can put to these factors. You know they’re important, but you don’t have the numbers. Well, practically (1) everybody overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and (2) doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.

Munger believes that thinking broadly in many disciplines makes you a better thinker because everything is literally related.

So if civilization can progress only with an advanced method of invention, you can progress only when you learn the method of learning.

Capitalism inherently means that others will always be trying to replicate any business that is profitable. You are always in a battle to keep what you have.

Among the worst mistakes Munger has made are things that he didn’t do.

Munger has chosen the word wisdom purposefully because he believes that mere knowledge, especially from only one domain, is not enough. To be wise, one must also have experience, common sense, and good judgment. How one actually applies these things in life is what makes a person wise.

fallacy.”2 Even though you cannot be perfect, you can get marginally

heuristics like mental accounting, sunk cost, ambiguity, regret, and framing, just to name a few.

Munger likes to say that a year in which you do not change your mind on some big idea that is important to you is a wasted year.

“A major difference between rich and poor people is that the rich people can spend more of their time suing their relatives.”

The desire to resist any change in a given conclusion or belief is particularly strong if a person has invested a lot of effort in reaching that conclusion or belief and/or if the change will result in something that is unpleasant.

Mark Twain’s statement comes to mind on this tendency: “All you need in this life is ignorance and confidence; then success is sure.”

Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past. —CHARLIE MUNGER, WESCO ANNUAL MEETING, 1996

There is significant danger inherent in this syndrome because people, often executives or politicians, may surround themselves with people who only tell them what they want to hear. Munger pointed to Bill Paley of CBS as an example of someone who put himself in a cocoon of unreality and suffered a major business failure as a result.

Prize-winning psychologist Daniel Kahneman believes that “[people do not invest even] the smallest amount trying to actually figure out what they’ve done wrong—not an accident: they don’t want to know.”

The deprival super-reaction tendency is more commonly called loss aversion, and it can cause investors to irrationally avoid risk when they face potential for gain, but irrationally seek risk when there is a potential for loss. In other words, people tend to be too conservative in seeking gains and too aggressive in seeking to avoid losses.

Falling in with the crowd due to social proof means it is mathematically impossible to outperform the market.

No one should buy an investment merely because it’s better than the lousy one you just saw or owned.

Do not make decisions while under stress. It’s just that simple.

It’s obvious that if a company generates high returns on capital and reinvests at high returns, it will do well. But this wouldn’t sell books, so there’s a lot of twaddle and fuzzy concepts that have been introduced that don’t add much. —CHARLIE MUNGER, WESCO ANNUAL MEETING, 2000

Buffett has said that the stock market is designed to transfer money “from the active to the patient.”

The human urge to avoid missing out is a powerful one that can drive investors into the deadly grip of a stock market bubble.

Thinking that your IQ is a bit lower than it actually is may actually improve your investing performance.

Morgan Housel absolutely nailed it when he wrote, “There’s a strong correlation between knowledge and humility.”

The principal problem with ideology is that you stop thinking when it comes to hard issues. Munger believes in regularly taking your best ideas, tearing them down, and looking for flaws as a means of improving yourself, which is hard to do if you are an ideologue.

Often, the level of passion you will have for a topic will grow over time. The more you know about some topics, the more passionate you will get.

Life is a lot more pleasant when you let other people make most of the big mistakes. After all, you will make enough mistakes all by yourself. Carefully learning from the mistakes of others is a way to accelerate the learning process. Nothing vicariously exposes you to more mistakes committed by others than reading.

people with a high IQ often relish the opportunity to solve hard valuation problems, thinking that they will be rewarded for having such ample mental skill with a higher return. The reality is that, in trying to solve hard problems, emotional and psychological problems cause the losses rather than a lack of intelligence. Hard problems are hard problems, pregnant with opportunities to make mistakes.

Owner’s earnings can be defined as: Net income + Depreciation + Depletion + Amortization – Capital expenditure – Additional working capital.

I’m really better at determining my level of incompetency and then just avoiding that. And I prefer to think that question through in reverse. We have a good batting average and that is probably because we are a little more competent than we think we are. —CHARLIE MUNGER, CNBC INTERVIEW, 2014

When Charlie thinks about things, he starts by inverting. To understand how to be happy in life Charlie will study how to make life miserable; to examine how a business becomes big and strong, Charlie first studies how businesses decline and die; most people care more about how to succeed in the stock market, Charlie is most concerned about why most have failed in the stock market.

Humans love stories because they cause them to suspend disbelief. Some of the biggest frauds in financial history, like Bernie Madoff and Ken Lay, were excellent storytellers. Stories cause people to suspend disbelief, and being in that state is harmful to any person’s investing process.

Too many investors confuse familiarity with competence. For example, just because a person flies on airlines a lot does not mean that he or she understands the airline industry

Buffett talks about that fact that knowing where the perimeter of your circle of competence may be is far more important than the size of your circle. If you are only competent in spots and stay in those spots, you can do just fine. Munger has said on this point: There are a lot of things we pass on. All of you have to look for a special area of competency and focus on that.

When in doubt, his suggestion is that you do nothing.

Taleb described what the smart investor is looking for in this way: “Payoffs [that] follow a power law type of statistical distribution, with big, near unlimited upside but because of optionality, limited downside.”

Leaving the question of price aside, the best business to own is one that, over an extended period, can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite—that is, consistently employ ever-greater amounts of capital at very low rates of return. —WARREN BUFFETT, 1992 BERKSHIRE SHAREHOLDER LETTER, 1993

We buy barriers. Building them is tough. … Our great brands aren’t anything we’ve created. We’ve bought them. If you’re buying something at a huge discount to its replacement value and it’s hard to replace, you have a big advantage. One competitor is enough to ruin a business running on small margins. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING,

while management of the businesses within Berkshire is extremely decentralized, the management of capital allocation and compensation systems is extremely centralized.

Rationality frequently wilts when the institutional imperative comes into play. For example: (1) As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; (2) just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds; (3) any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops; and (4) the behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated. —WARREN BUFFETT, BERKSHIRE ANNUAL MEETING, 1989

Munger wants the moat of the company he is investing in to be strong enough to survive bad management.

To test whether you have a moat with a given company, determine if you are earning profits that are greater than your opportunity cost of capital (OCC). If that level of profitability has been maintained for some reasonable period (measured in years), then you have a strong moat. If the size of the positive difference between return on invested capital (ROIC) and OCC is large and if that spread is persistent over time, your moat is relatively strong.

parts. In contrast, a moat being destroyed is easier to spot because this is a process of something transforming into nothing.

It is important to draw a clear and simple definitional distinction between value as a statistical factor (Fama/French) and value as an analytical style or goal (Ben Graham). The two methods are solving for different questions: Fama/French is solving for what creates a persistent disparity of return across large numbers of stocks, while Graham-style value investors are solving for where can one find low risk of permanent impairment of capital and a high probability of an attractive return.