Wisdom of Great investors

KEY IDEAS

1) Benjamin Graham, John templeton: Investing vs Speculation; Mr. Market, Margin of Safety, Regression to the mean; Asset value, Earnings power value, Bargains, Buying at the point of maximum pessimism

2) Philip Fisher: Qualitative factors, Growth investing, Using Checklists to reduce error rates, Scuttlebutt

3) Warren Buffett: Moats, Float, Circle of competence, "Business, People, Price", Growth & Value, Franchise value, Intrinsic value vs Book value, Cash generating machine, Compounding machine

4) Charlie Munger: Psychology of Human Mis-Judgement, Multi-disciplinary thinking, Mental models, Inversion, Thinking forward & backward, Power of Incentives, Perverse incentives, Un-intended consequences, Asking: So what? And then what?, Concentrated portfolio

5) Peter Lynch: Multi-baggers, Stock categories, Portfolio construction

6) Seth Klarman: Distressed investing, Greater fool theory

7) Joel Greenblatt: Magic Formula investing, Special situations

8) Mohnish Pabrai: Cloning, Learning from the best practitioners & thinkers

QUOTES

"Many shall be restored that now are fallen, and many shall fall that now are in honor."

"Those who do not remember the past are condemned to repeat it."

"Time is the friend of the wonderful company, the enemy of the mediocre."

"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

"Rule no. 1: Do not lose money. Rule no. 2: Never forget Rule No. 1"

"Just look to do the most intelligent thing you can with the capital that you have. Measure everything against your alternatives"

"The chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. Do not view the current good earnings as equivalent to earnings power."

"You are looking for a mis-priced gamble. That's what investing is. And you have to know enough whether the gamble is mispriced. That's value investing."

"If you know which businesses you can and cannot value, you're going to make money."

"People calculate too much and think too little."

"We want to own businesses that drown us in cash."

"All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies."

"Part of what you must learn is how to handle mistakes & new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much loved hand."

"Investing is simple but not easy. Success in investing doesn't correlate with I.Q. Once you're above the level of 100, once you have ordinary intelligence, What you need is the temperament to control the urges (Self-control) that get other people into trouble in investing."

"Be greedy where others are fearful. Be fearful where others are greedy."

"Price is what you pay. Value is what you get."

"Figure out where you’ve got an edge. And play within your own circle of competence."

"The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch."

"Quickly eliminate the big universe of what not to do. Follow up with a fluent, multidisciplinary approach on what remains. Then, act decisively when, and only when, the right circumstances appear."

"We just throw some decisions into "the too hard file" and move on to others. I don't try to jump over 7-foot bars. I look around for 1-foot bars that I can step over."

"All intelligent investing is Value investing - to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass."

"Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times. Put a heavy weight on certainty. Its not risky to buy securities at a fraction of what they are worth."

"I look for businesses in which I think I can predict what they're going to look like in 10 to 15 years time. Take Wrigley's chewing gum. I don't think the internet is going to change how people chew gum."

"We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement."

"No wise pilot, no matter how great his talent and experience, fails to use a checklist."

"You need a different checklist and different 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."

"Risk comes from not knowing what you are doing. We'll never risk what we have for what we don't have and don't need."

"You know, all time is uncertain. The 4 most dangerous words in Investing are: 'This time it's different'."

"Avoid difficult businesses. In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen."

"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact."

"After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we have concentrated on identifying 1-foot hurdles that we could step over rather than because we acquired any ability to clear 7-footers."

"It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price. Now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements."

"Try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."

"Your goal as an investor should be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher 5, 10 and 20 years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

"The No.1 idea is to view a stock as an ownership of the business, and to judge the staying quality of the business in terms of it’s 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. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years."

"Investment is most intelligent when it is most businesslike. I am a better investor because i am a businessman and I am a better businessman because i am an investor."

"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

"Earnings should only be retained [as opposed to being paid out as dividends] when there is a reasonable prospect that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors."

CONCENTRATION:

"The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea."

"With each investment you make, you should have the courage and the conviction to place at least 10% of your net worth in that stock."

"I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up what you’d really thought about. So you’d do so much better."

"Diversification may preserve wealth, but concentration builds wealth."

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

"Wide diversification is only required when investors do not understand what they are doing."

TIMING & TIME HORIZON:

"At any given time, There is always a bull market going on somewhere."

"Timidity prompted by past failures causes investors to miss the most important bull markets."

"Stocks can't outperform businesses indefinitely. Bull markets can obscure mathematical laws, but they cannot repeal them."

"Occasional outbreaks of those 2 super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

"The beauty of stocks is they do sell at silly prices sometimes. That's how Charlie and I got rich."

"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well. You pay a very high price in the stock market for a cheery consensus."

"To buy when others are despondently selling and sell when others are greedily buying requires the greatest courage and pays the greatest reward."

"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

VOLATILITY:

"Look at market fluctuations as your friend rather than your enemy; Profit from folly rather than participate in it."

"Cheap stocks can always get cheaper but they offer a great buying opportunity for long term investors."

If the business does well, the stock will eventually follow.

"Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market."

"Volatility equals Opportunity. It is largely the fluctuations which throw up bargains and the uncertainty due to the fluctuations which prevents other people from taking advantage of them."

"In the short run, the market is a voting machine, but, In the long run, it is a weighing machine."

"A public opinion poll is no substitute for thought."

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 5 years."

"You are neither right nor wrong because the crowd agrees or disagrees with you. You are right because your data and reasoning is right."

"At times, an indefinite and approximate measure of the intrinsic value may be sufficient. To use a homely simile, it is quite possible to decide by inspection that a man is heavier than he should be without knowing his exact weight."

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LIFE LESSONS

"Compounding is the eighth wonder of the world."

"Be a learning machine. Master the best of what other people have figured out."

"Hard work & Honesty, if you keep at it, can get you almost anything."

"Hang out with people whose behavior is better than yours and you'll drift in that direction."

"Take a simple idea and take it seriously."

"Never sell anything you wouldn’t buy yourself. Never work for anyone you don’t respect and admire."

"A lot of success in life and business comes from knowing what you want to avoid: poor health, early death, a bad marriage etc."

"Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all your plans go wrong? Where don’t you want to go, and how do you get there?"

"Know where you are going to die. Don't go there."

"It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you'll do things differently."

"Develop good mental habits. Chains of habit are too light to be felt until they are too heavy to be broken."

"Have a latticework of mental models in your head. Know the big ideas in the big disciplines and use them routinely – all of them, not just a few."

"You are going to make mistakes. Recognize them, Correct them, and, Move on. Don’t perpetuate your errors by rationalizing that I have too much invested into this, and I can’t just write it off and start again."

"Enjoy the process and the journey."