Tag: Value Investing

Devotees of Charlie Munger don’t hear a lot from him, particularly in comparison to the frequency of media appearances that his partner at Berkshire Hathaway Warren Buffett makes. But, when Charlie Munger talks, follower’s can be sure they’re always colorful.

Charlie Munger is Warren Buffett’s partner and Vice-Chairman at Berkshire Hathaway, the investment conglomerate. In his capacity, Munger has been a behind-the-scenes co-thinker at Berkshire and has influenced many a decision made by Warren Buffett.

Munger was chair of Wesco Financial Corporation from 1984 through 2011. He is also the chair of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation. Unlike Warren Buffett, Charlie Munger has claimed that he is a generalist for whom investment is only one of a broad range of interests that include architecture, philosophy, philanthropy, investing, yacht-design, etc.

Charlie Munger’s quotations and pithy comments have come to be known as ‘Mungerisms.’ Many Mungerisms are witty one-liners and maxims that reflect Charlie Munger’s humbleness and advocacy of elemental wisdom.

1. “I don’t spend much time regretting the past, once I’ve taken my lesson from it. I don’t dwell on it.”
2. “Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.”
3. “In my whole life, nobody has ever accused me of being humble. Although humility is a trait I much admire, I don’t think I quite got my full share.”
4. ” The investment game always involves considering both quality and price, and the trick is to get more quality than you pay for in price. It’s just that simple.”
5. “Determine value apart from price; progress apart from activity; wealth apart from size.”
6. “Someone will always be getting richer faster than you. This is not a tragedy.”
7. “We’re the tortoise that has outrun the hare because it chose the easy predictions.”
8. “Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat.”
9. “Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas.”
10. “For society, the Internet is wonderful, but for capitalists, it will be a net negative. It will increase efficiency, but lots of things increase efficiency without increasing profits. It is way more likely to make American businesses less profitable than more profitable. This is perfectly obvious, but very little understood.”
11. “People always underestimate the ability of earth to increase its carrying capacity.”
12. “I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.”
13. “Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company’s owners are slim at best.”
14. “We try more to profit from always remembering the obvious than from grasping the esoteric.”
15. “We have a history when things are really horrible of wading in when no one else will.”
16. “In the corporate world, if you have analysts, due diligence, and no horse sense, you’ve just described hell.”
17. “Forgetting your mistakes is a terrible error if you are trying to improve your cognition.”
18. “Whenever you think something or some person is ruining your life, it’s you. A victimization mentality is so debilitating.”
19. “Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary.”
20. “People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts.”
21. “Intelligent people make decisions based on opportunity costs.”
22. ” Today, it seems to be regarded as the duty of CEOs to make the stock go up. This leads to all sorts of foolish behavior. We want to tell it like it is.”
23. “Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance.”
24. “We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side. If you can’t state arguments against what you believe better than your detractors, you don’t know enough.”
25. “Above all, never fool yourself, and remember that you are the easiest person to fool.”
26. “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.”
27. “The best armor of old age is a well-spent life preceding it.”
28. “There are always people who will be better at something than you are. You have to learn to be a follower before you become a leader.”
29. “The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage.”
30. “If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That’s hard. But if you buy a few great companies, then you can sit on your ass. That’s a good thing.”
31. “We get these questions a lot from the enterprising young. It’s a very intelligent question: You look at some old guy who’s rich and you ask, ‘How can I become like you, except faster?”
32. “The more hard lessons you can learn vicariously rather than through your own hard experience, the better.”
33. “Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”
34. “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.”
35. “Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.”
36. “Three rules for a career: 1) Don’t sell anything you wouldn’t buy yourself; 2) Don’t work for anyone you don’t respect and admire; and 3) Work only with people you enjoy.”
37. “There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst, because you can’t even have any fun with it. It’s a total net loss.”
38. “A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.”
39. “Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group then to hell with them.”
40. “The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.”
41. “If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.”
42. “Acknowledging what you don’t know is the dawning of wisdom.”
43. “Checklist routines avoid a lot of errors. You should have all of this elementary wisdom, and you should go through a mental checklist in order to use it. There is no other procedure that will work as well.”
44. “Understanding how to be a good investor makes you a better business manager and vice versa.”
45. “Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.”
46. “I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line.”
47. “Everywhere there is a large commission, there is a high probability of a rip-off.”
48. “Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”
49. “You must know the big ideas in the big disciplines, and use them routinely — all of them, not just a few. Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.”
50. “There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.”
51. “No CEO examining books today understands what the hell is going on.”
52. “Never, ever, think about something else when you should be thinking about the power of incentives.”
53. “There are some things you should pay up for, like quality businesses and people.”
54. “Avoid working directly under somebody you don’t admire and don’t want to be like.”
55. “The best thing a human being can do is to help another human being know more.”
56. “People calculate too much and think too little.”
57. “You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”
58. “It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced bet – that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don’t. It’s just that simple.”
59. “Everybody engaged in complex work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing.””
60. “We don’t care about quarterly earnings (though obviously we care about how the business is doing over time) and are unwilling to manipulate in any way to make some quarter look better.”
61. “One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life — if you don’t need a lot of material goods.”
62. “There are a lot of things we pass on. We have three baskets: in, out, and too tough…We have to have a special insight, or we’ll put it in the ‘too tough’ basket. All of you have to look for a special area of competency and focus on that.”
63. “You can progress only when you learn the method of learning.”
64. “We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.”
65. “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.”
66. ” I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on.”
67. “You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add — and that your best course is to trust some expert.”
68. “If you get a lot of heavy ideology young — and then you start expressing it — you are really locking your brain into a very unfortunate pattern.”
69. “We just throw some decisions into the ‘too hard’ file and go onto the others.”
70. “Intense interest in any subject is indispensable if you’re really going to excel in it.”
71. “Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things.””
72. “Recognize reality even when you don’t like it – especially when you don’t like it.”
73. “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…”
74. “All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.”
75. “In my life there are not that many questions I can’t properly deal with using my $40 adding machine and dog-eared compound interest table.”
76. “Don’t confuse correlation and causation. Almost all great records eventually dwindle.”
77. “Most people are too fretful, they worry too much. Success means being very patient, but aggressive when it’s time.”
78. “The safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”
79. “Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you’ve won.”
80. “I find it quite useful to think of a free-market economy – or partly free market economy – as sort of the equivalent of an ecosystem. Just as animals flourish in niches, people who specialize in some narrow niche can do very well.”
81. “I would rather throw a viper down my shirt than hire a compensation consultant.”
82. “Thinking that what’s good for you is good for the wider civilization, and rationalizing foolish or evil conduct, based on your subconscious tendency to serve yourself, is a terrible way to think.”
83. “There has never been a master plan. Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality. We want people taking into account new information.”
84. “You need a different checklist and mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.”
85. “Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations.”
86. “If you don’t allow for self-serving bias in the conduct of others, you are, again, a fool.”
87. “It’s a good habit to trumpet your failures and be quiet about your successes.”
88. “Those who will not face improvements because they are changes, will face changes that are not improvements.”
89. “Smart people aren’t exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”
90. “I’m right, and you’re smart, and sooner or later you’ll see I’m right.”
91. “Mimicking the herd invites regression to the mean.”
92. “I think track records are very important. If you start early trying to have a perfect one in some simple thing like honesty, you’re well on your way to success in this world.”
93. ” A lot of opportunities in life tend to last a short while, due to some temporary inefficiency… For each of us, really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.”
94. “Warren spends 70 hours a week thinking about investing.”
95. “If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation.”
96. “Well, some of our success we predicted and some of it was fortuitous.”
97. “What’s the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts.”
98. “Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.”
99. “You want to be very careful with intense ideology. It presents a big danger for the only mind you’re ever going to get.”
100. “I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”

Insightful books about Charlie Munger include Poor Charlie’s Almanack, Seeking Wisdom: From Darwin to Munger, and Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger.

More Mungerisms—Yet More Zingers from the Inimitable Charlie Munger

• “We get these questions a lot from the enterprising young. It’s a very intelligent question: You look at some old guy who’s rich and you ask, ‘How can I become like you, except faster?”
• “It’s natural that you’d have more brains going into money management. There are so many huge incomes in money management and investment banking—it’s like ants to sugar. There are huge incentives for a man to take up money management as opposed to, say, physics, and it’s a lot easier.”
• “Black-Scholes works for short-term options, but if it’s a long-term option and you think you know something [about the underlying asset], it’s insane to use Black-Scholes.”
• “The interesting thing about it to me is the mindset. With all these “helpers” running around, they talk about doing deals. We talk about welcoming partners. The guy doing deals, he wants to do a deal and then unwind it in the near future. It’s totally opposite for us. We like to build lasting relationships. I think our system will work better in the long term than flipping deals. I think there are so many of them [helpers] that they’ll get in each other’s way. I don’t think they’ll make enough money to meet their expectations, by flipping, flipping, flipping.”
• “Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.”
• “A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.”
• “Well, the questioner came from Singapore which has perhaps the best economic record in the history of any developing economy and therefore he referred to 15% per annum as modest. It’s not modest—it’s arrogant. Only someone from Singapore would call it modest.”
• “People always underestimate the ability of earth to increase its carrying capacity.”
• “Civilized people don’t buy gold. They invest in productive businesses.”
• “Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations.”
• “We haven’t pushed it as hard as other people would have pushed it. I don’t want to go back to Go. I’ve been to Go. A lot of our shareholders have a majority of their net worth in Berkshire, and they don’t want to go back to Go either.”
• “There are always people who will be better at some thing than you are. You have to learn to be a follower before you become a leader.”
• “The more hard lessons you can learn vicariously rather than through your own hard experience, the better.”
• “Warren spends 70 hours a week thinking about investing.”
• “Size will hurt returns. Look at Berkshire Hathaway—the last five things Warren has done have generated returns that are splendid by historical standards, but now give him $100 billion in assets and measure outcomes across all of it, it doesn’t look so good. We can only buy big positions, and the only time we can get big positions is during a horrible period of decline or stasis. That really doesn’t happen very often.”
• “Obviously, consideration of costs is key, including opportunity costs. Of course capital isn’t free. It’s easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you’re generating a 100% return on capital, then you shouldn’t invest in something that generates an 80% return on capital. It’s crazy.”
• “As for what we like least, we don’t want kleptocracies. We need a rule of law. If people are stealing from the companies, we don’t need that.”
• “I think it would be a great improvement if there were no D&O insurance. The counter-argument is that no-one with any money would serve on a board. But I think net net you’d be better off.”
• “Generally speaking, it can’t be good to be running a big current account deficit and a big fiscal deficit and have them both growing. You would be thinking the end there would be a comeuppance. … [But] it isn’t as though all the other options look wonderful compared to the US. It gives me some feeling that what I regard as fiscal misbehavior on our part could go on some time without paying the price.”
• “I’ve never succeeded in something I wasn’t interested in.”
• “Deferred gratification really works if you want to get better and better.”
• “We’re partial to putting out large amounts of money where we won’t have to make another decision.”
• “In effect about half our spare cash was stashed in currencies other than the dollar. I consider that a non-event. As it happens it’s been a very profitable non-event.”
• “The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another—this was the attitude in venture capital until a few years ago. This was not the case at all for us—we scrounged around for companies to buy. For 20 years, we didn’t buy more than one or two per year. …It’s fair to say that we were rooting around. There were no commissioned salesmen. Anytime you sit there waiting for a deal to come by, you’re in a very dangerous seat.”
• “I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line.”
• “If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That’s hard. But if you buy a few great companies, then you can sit on your ass. That’s a good thing.”
• “Even if you specialize, you should still spend 10-20% of your time learning the big ideas of the major disciplines.”
• “In the 1930s, there as a stretch here you could borrow more against the real estate than you could sell it for. I think that’s hat’s going on in today’s private-equity world”
• “If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.”
• “I like the Buffett system (0% fee, 6% hurdle, 25% gain-share). I’m looking at Mohnish Pabrai who still uses it. I wish it would spread.”
• “Acknowledging what you don’t know is the dawning of wisdom.”
• “Beta and modern portfolio theory and the like—none of it makes any sense to me.”
• “Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.”
• “I have concluded that most PhD economists under appraise the power of the common-stock-based “wealth effect,” under current extreme conditions. … “Wealth effects” involve mathematical puzzles that are not nearly so well worked out as physics theories and never can be. …what has happened in Japan … has shaken up academic economics, as it obviously should, creating strong worries about recession from “wealth effects” in reverse.”
• “A lot of share-buying, not bargain-seeking, is designed to prop stock prices up. Thirty to 40 years ago, it was very profitable to look at companies that were aggressively buying their own shares. They were motivated simply to buy below what it was worth.”
• “There are a lot of things we pass on. We have three baskets: in, out, and too tough…We have to have a special insight, or we’ll put it in the ‘too tough’ basket. All of you have to look for a special area of competency and focus on that.”
• “I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”
• “In terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important. … In some businesses, the very nature of things is to sort of cascade toward the overwhelming dominance of one firm. And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, “To hell with it. We’re either going to be #1 or #2 in every field we’re in or we’re going to be out.”
• “Whenever you think something or some person is ruining your life, it’s you. A victimization mentality is so debilitating.”
• “Our investment style has been given a name—focus investing—which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It’s been good for us.”
• “We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.”
• “There are a lot of things in life way more important than money. All that said, some people do get confused. I play golf with a man who says, ” What good is health? You can’t buy money with it.”
• “Am I comfortable with a non-diversified portfolio? Yes. The Mungers have three stocks: Berkshire, Costco, and Li Lu’s fund.”
• “I don’t think operating over many disciplines is a good idea for most people…get good at something that society rewards.”
• “Mimicking the herd invites regression to the mean.”
• “We just throw some decisions into the ‘too hard’ file and go onto the others.”
• “In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables—like the discount warehouses of Costco.”
• “You only need one cinch. When you get the chance, step up to the pie cart with a big pan.”
• “I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on.”
• “We have a history when things are really horrible of wading in when no one else will.”
• “We don’t care about quarterly earnings (though obviously we care about how the business is doing over time) and are unwilling to manipulate in any way to make some quarter look better.”
• “Everywhere there is a large commission, there is a high probability of a rip-off.”
• “Wrigley is a great business, but that doesn’t solve the problem. Buying great businesses at advantageous prices is very tough.”
• “I live surrounded by Koreans in L.A. I would regard Korean culture and what they’ve created as one of the most remarkable in the history of capitalism. We don’t think it’s an accident that Iscar discovered Korea. If you try to find 10 countries better than Korea … you won’t get through one hand. We are huge admirers of Korea.”
• “Diversification is great for people who know nothing…one (investment) will work if you do it right.”
• “Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up.”
• “In many areas of life the only way to win is to grind away and work hard for a very long time.”
• “I think democracies are prone to inflation because politicians will naturally spend [excessively]—they have the power to print money and will use money to get votes. If you look at inflation under the Roman Empire, with absolute rulers, they had much greater inflation, so we don’t set the record. It happens over the long-term under any form of government.”
• “There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash—and I don’t want to go back.”
• “Our biggest mistakes, were things we didn’t do, companies we didn’t buy.”
• “Smart people aren’t exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”
• “You must know the big ideas in the big disciplines, and use them routinely—all of them, not just a few. Most people are trained in one model—economics, for example—and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.”
• “Mutual funds charge 2% per year and then brokers switch people between funds, costing another 3-4 percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it’s disgusting. It’s much better to be part of a system that delivers value to the people who buy the product. But if it makes money, we tend to do it in this country.”
• “You want to be very careful with intense ideology. It presents a big danger for the only mind you’re ever going to get.”
• “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…”
• “We’ve had the most massive creation of wealth for people a lot younger than those who formerly got wealth in the history of the world. The world is full of young people who really want to get rich, and “when I left school] nobody thought it was a reasonable possibility.”
• “Generally speaking, if you’re counting on outside directors to act [forcefully to protect your interests as a shareholder, then you’re crazy]. As a general rule in America, boards act only if there’s been a severe disgrace. My friend Joe was asked to be on the board of Northwestern Bell and he jokes that ‘it was the last thing they ever asked me.’ I think you get better directors when you get directors who don’t need the money. When it’s half your income and all your retirement, you’re not likely to be very independent. But when you have money and an existing reputation that you don’t want to lose, then you’ll act more independently.”
• “Warren talked to guy at an investment bank and asked how they made their money. He said, “Off the top, off the bottom, off both sides and in the middle.”
• “I see almost no change in the price of the composite product that flows through Costco I don’t feel sorry for the people who pay $27 million for an 8,000-square-foot condo in Manhattan. So inflation comes in places.”
• “There are some things you should pay up for, like quality businesses and people.”
• “I always like it when someone attractive to me agrees with me, so I have fond memories of Phil Fisher. The idea that it was hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But 98% of the investment world doesn’t think this way.”
• “I constantly see people rise in life who are not the smartest—sometimes not even the most diligent. But they are learning machines; they go to bed every night a little wiser than when they got up. And, boy, does that habit help, particularly when you have a long run ahead of you.”
• “If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounce on them with vigor.”
• “I don’t think there’s any business that we’ve bought that would have sold itself to a hedge fund. There’s a class of businesses that doesn’t want to deal with private-equity and hedge funds…thank God”
• “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.”
• “Understanding how to be a good investor makes you a better business manager and vice versa.”
• “Black-Scholes is a know-nothing system. If you know nothing about value—only price—then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it’s crazy to get into Black-Scholes.”
• “We try more to profit from always remembering the obvious than from grasping the esoteric.”
• “The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete. So Graham had a lot of wonderful ideas.”
• “Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas.”
• “Closet indexing….you’re paying a manager a fortune and he has 85% of his assets invested parallel to the indexes. If you have such a system, you’re being played for a sucker.”
• “Don’t confuse correlation and causation. Almost all great records eventually dwindle.”
• “It’s hard to predict what will happen with two brands in a market. Sometimes they will behave in a gentlemanly way, and sometimes they’ll pound each other. I know of no way to predict whether they’ll compete moderately or to the death. If you could figure it out, you could make a lot of money.”
• “Suppose, any one of you knew of a wonderful thing right now that you were overwhelmingly confident- and correctly so- would produce about 12% per annum compounded as far as you could see. Now, if you actually had that available, and by going into it you were forfeiting all opportunities to make money faster- there’re a lot of you who wouldn’t like that. But a lot of you would think, “What the hell do I care if somebody else makes money faster?” There’s always going to be somebody who is making money faster, running the mile faster or what have you. So in a human sense, once you get something that works fine in your life, the idea of caring terribly that somebody else is making money faster strikes me as insane.”
• “It’s a good habit to trumpet your failures and be quiet about your successes.”
• “There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer. … Disney found that it could raise those prices a lot and the attendance stayed right up. So a lot of the great record of Eisner and Wells … came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies… At Berkshire Hathaway, Warren and I raised the prices of See’s Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.”
• “What we don’t like in modern capitalism is the expectations game. It’s not the kissing cousin of evil; it’s the blood brother.”
• “If the technology hadn’t changed, [newspapers would] still be great businesses. Network TV [in its heyday,] anyone could run and do well.”
• “For society, the Internet is wonderful, but for capitalists, it will be a net negative. It will increase efficiency, but lots of things increase efficiency without increasing profits. It is way more likely to make American businesses less profitable than more profitable. This is perfectly obvious, but very little understood.”
• “Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary.”
• “The whole concept of dividing it up into ‘value’ and ‘growth’ strikes me as twaddle. It’s convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing.”
• “If mutual fund directors are independent, then I’m the lead character in the Bolshoi Ballet.”
• “Arrange your affairs so you can handle a 50% decline with aplomb…if it never happens to you, you’re not being aggressive enough.”
• “The problem with closed bid auctions is that they are frequently won by people making a technical mistake, as in the case with Shell paying double for Belridge Oil. You can’t pay double the losing bid in an open outcry auction.”
• “We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side. If you can’t state arguments against what you believe better than your detractors, you don’t know enough.”
• “There is this company in an emerging market that was presented to Warren. His response was, ‘I don’t feel more comfortable buying that than I do of adding to Wells Fargo.’ He was using that as his opportunity cost. No one can tell me why I shouldn’t buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better.”
• “Investing is where you find a few great companies and then sit on your ass.”
• “The tax code gives you an enormous advantage if you can find some things you can just sit with.”
• “Both Warren and I know you can’t trust numbers put out by the banking industry.”
• “To some extent, stocks are like Rembrandts. They sell based on what they’ve sold in the past. Bonds are much more rational. No-one thinks a bond’s value will soar to the moon.” “Imagine if every pension fund in America bought Rembrandts. Their value would go up and they would create their own constituency.”
• “Forgetting your mistakes is a terrible error if you are trying to improve your cognition.”
• “Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.”
• “The cost of being a publicly traded stock has gone way, way up. It doesn’t make sense for a little company to be public anymore. A lot of little companies are going private to be rid of these burdensome requirements….”
• “We’re too soon old and too late smart. That’s the biggest problem we have.”
• “A lot of opportunities in life tend to last a short while, due to some temporary inefficiency… For each of us, really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.”
• “I’m in love with the Xerox machine.” (when asked about his favorite technological progress)
• “If you have only a little capital and are young today, there are fewer opportunities than when I was young. Back then, we had just come out of a depression. Capitalism was a bad word. There had been abuses in the 1920s. A joke going around then was the guy who said, ‘I bought stock for my old age and it worked—in six months, I feel like an old man!’ “It’s tougher for you, but that doesn’t mean you won’t do well—it just may take more time. But what the heck, you may live longer.”
• “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.”
• “Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things.”
• “The basic concept of value to a private owner and being motivated when you’re buying and selling securities by reference to intrinsic value instead of price momentum—I don’t think that will ever be outdated.”
• “Kellogg’s and Campbell’s moats have also shrunk due to the increased buying power of supermarkets and companies like Wal-Mart. The muscle power of Wal-Mart and Costco has increased dramatically.”
• “If you think you know what the state of the payments system 10 years out you’re in a state of delusion.”
• “Recognize reality even when you don’t like it—especially when you don’t like it.”
• “It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and have the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?”
• “There has never been a master plan. Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality. We want people taking into account new information.”
• “Our standard prescription for the know-nothing investor with a long-term time horizon is a no-load index fund. I think that works better than relying on your stock broker. The people who are telling you to do something else are all being paid by commissions or fees. The result is that while index fund investing is becoming more and more popular, by and large it’s not the individual investors that are doing it. It’s the institutions.”
• “Litigation is notoriously time-consuming, inefficient, costly and unpredictable.”
• “We have a lot of businesses that neither Warren or I could run, but we’ve gotten good at judging which people can succeed.”
• “We’re the tortoise that has outrun the hare because it chose the easy predictions.”
• “It is way less certain to be a wonderful business in the future. The threat is alternative mediums of information. Every newspaper is scrambling to parlay their existing advantage into dominance on the Internet. But it is way less sure [that this will occur] than the certainty 20 years ago that the basic business would grow steadily, so there’s more downside risk. The perfectly fabulous economics of this business could become grievously impaired.”
• “One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life—if you don’t need a lot of material goods.”
• “Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.”
• “I know just enough about thermodynamics to understand that if it takes too much fossil-fuel energy to create ethanol, that’s a very stupid way to solve an energy problem.”
• “People calculate too much and think too little.”
• “You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add—and that your best course is to trust some expert.”
• “It takes almost no capital to open a new See’s candy store. We’re drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control”
• “At Berkshire Hathaway we do not like to compete against Chinese manufacturers.”
• “The success of Berkshire came from making two decisions a year over 50 years.”
• “By regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level. … I find that what I see going on there pretty much informs me about what’s happening at the macro level.”
• “Like Warren, I had a considerable passion to get rich. “Not because I wanted Ferraris— I wanted the independence. I desperately wanted it.”
• “Warren and I avoid doing anything that someone else at Berkshire can do better. You don’t really have a competency if you don’t know the edge of it.”
• “Checklist routines avoid a lot of errors. You should have all of this elementary wisdom, and you should go through a mental checklist in order to use it. There is no other procedure that will work as well.”
• “Soros couldn’t bear to see others make money in the technology sector without him, and he got killed. It doesn’t bother us at all.”
• “We don’t believe that markets are totally efficient and we don’t believe that widespread diversification will yield a good result. We believe almost all good investments will involve relatively low diversification. Maybe 2% of people will come into our corner of the tent and the rest of the 98% will believe what they’ve been told.”
• “Of course I’m troubled by huge consumer debt levels—we’ve pushed consumer credit very hard in the US. Eventually, if it keeps growing, it will stop growing. As Herb Stein said, “If something cannot go on forever, it will stop.” When it stops, it may be unpleasant. Other than Herb Stein’s quote, I have no comment.”
• “No CEO examining books today understands what the hell is going on.”
• “In Gillette’s case, they keep surfing along new technology which is fairly simple by the standards of microchips. But it’s hard for competitors to do. So they’ve been able to stay constantly near the edge of improvements in shaving.”
• “You know the cliche’ that opposites attract? Well, opposites don’t attract. Psychological experiments prove that’s it’s people who are alike that are attracted to each other. Our minds [his and Buffett’s] work in very much the same way.”
• “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
• “I do not want a proctologist who knows Schopenhauer. On the other hand, a life devoted solely to proctology isn’t much of a life.”
• “It is entirely possible that you could use our mental models to find good IPOs to buy. There are countless IPOs every year, and I’m sure that there are a few cinches that you could jump on. But the average person is going to get creamed. So if you’re talented, good luck. IPOs are too small for us, or too high tech, so we won’t understand them. So, if Warren’s looking at them, I don’t know about it.”
• “Well, some of our success we predicted and some of it was fortuitous.”
• “I know a man named John Arriaga. After he graduated from Stanford, he started to develop properties around Stanford. There was no better time to do it then when he did. Rents have gone up and up. Normal developers would borrow and borrow. What John did was gradually pay off his debt, so when the crash came and 3 million of his 15 million square feet of buildings went vacant, he didn’t bat an eyebrow. The man deliberately took risk out of his life, and he was glad not to have leverage. There is a lot to be said that when the world is going crazy, to put yourself in a position where you take risk off the table. We might all consider imitating John.”
• “Well envy/jealousy made, what, two out of the ten commandments? Those of you who have raised siblings you know about envy, or tried to run a law firm or investment bank or even a faculty? I’ve heard Warren say a half a dozen times, “It’s not greed that drives the world, but envy.”
• “There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested—there’s never any cash. It reminds me of the guy who looks at all of his equipment and says, “There’s all of my profit.” We hate that kind of business.”
• “Well the open-outcry auction is just made to turn the brain into mush: you’ve got social proof, the other guy is bidding, you get reciprocation tendency, you get deprival super-reaction syndrome, the thing is going away… I mean it just absolutely is designed to manipulate people into idiotic behavior.”
• “I think it is roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don’t think it’s totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records. It’s efficient enough, so it’s hard to have a great investment record. But it’s by no means impossible. Nor is it something that only a very few people can do. The top three or four percent of the investment management world will do fine.”
• “It’s hard to believe that he’s getting better with each passing year. It won’t go on forever, but Warren is actually improving. It’s remarkable: Most almost-72-year-old men are not improving, but Warren is.”
• “If you take the best text in economics by Mankinaw, he says intelligent people make decisions based on opportunity costs—in other words, it’s your alternatives that matter. That’s how we make all of our decisions. The rest of the world has gone off on some kick—there’s even a cost of equity capital. A perfectly amazing mental malfunction.”
• “Berkshire in its history has made money betting on sure things.”
• “Most people are too fretful, they worry to much. Success means being very patient, but aggressive when it’s time.”
• “Berkshire is in the business of making easy predictions … If a deal looks too hard, the partners simply shelve it.”
• “Neither Warren nor I have any record of making large profits from interest rate bets. That being said, all intelligent citizens of this republic think a bit about this. In my lifetime, I’ve seen interest rates range from 1% to 20%. We try to operate so that really extreme interest rates in either direction wouldn’t be too bad for us. When interest rates are in a middle range, as they are now, we’re agnostic.”
• “I don’t spend much time regretting the past, once I’ve taken my lesson from it. I don’t dwell on it.”
• “We started from such a strong position. It’s not as if the alternatives are all so great. I can understand why people would rather invest in the U.S. Do you want to be in Europe, where 12-13% of people are unemployed and most 28-year-olds are living at home and being paid by state to do it? Or be in Brazil or Venezuela with the political instability that you fear? It’s not totally irrational that people still like the U.S., despite its faults. Whatever misbehavior there is could go on quite a long time without a price being paid.”
• “Those who will not face improvements because they are changes, will face changes that are not improvements.”
• “We’re guessing at our future opportunity cost. Warren is guessing that he’ll have the opportunity to put capital out at high rates of return, so he’s not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we’d change. Our hurdles reflect our estimate of future opportunity costs.”
• “The value of my partnership went down 50%…it’s a mark of manhood. You better be able to handle it without much fussing.”
• “Today, it seems to be regarded as the duty of CEOs to make the stock go up. This leads to all sorts of foolish behavior. We want to tell it like it is.”
• “Finding a single investment that will return 20% per year for 40 years tends to happen only in dreamland. In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That’s your opportunity cost. That’s what you learn in freshman economics. The game hasn’t changed at all. That’s why Modern Portfolio Theory is so asinine.”
• “You can progress only when you learn the method of learning.”
• “One of the reasons I don’t go around talking about how the Fed should work is because I’d mostly be pounding my own ideas into my head.”