WISDOM FROM CHARLES MUNGER AND WARREN BUFFETT
We really don't want to buy into any organizatin that we felt would be lacking that quality in the first place - because we really don't believe in buying into organizations to change them. We may change the comp system a little or something of the sort...
There is a certain natural tendency to overlook anything that simple and important.
A bird in hte hand is worth two in the bush.
The cost of every deal that we do is measured by the second best deal that's around at a given time - including doing more of some of the things we're already in.
On the real risk of investing
1. The certainty with which the long-term economic characteristics of the business can be evaluated
2. The certainty with which management can be evaluated, both to its ability to realize the full potential of the business and to wisely employ its cash flow.
3. The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than to itself.
4. The purchase price of the business.
5. The levels of taxation and inflation that will be experienced and that will determine the degree by which an investor's purchasing power return is reduced from his gross return.
(Don't take life too seriously)
Life is too important to be taken seriously.
Distance has the same effect on the mind as on the eye. When we fail we should view it as a learning experience.
I do think enthusiasm is a good quality to have generally. If you are in a job that you are not enthusiastic about, find something else. So you ought to be doing something that you enjoy as you go along, and can be enthusiastic about.
Do what turns you on. Do something that if you had all the money in the world, you'd still be doing it. You've got to have a reason to jump out of bed in the morning... Don't look for the money. Look for something you love, and if you're good, the money will come.
（Having reasonable expectations）
Blessed is he that expects nothing, for he shall never be disappointed.
Feeling like a victim is a perfectly disastrous way to go through life. If you just take the attitude that however bad it is in any way, it's always your fault and you just fix it as best you can.
When bad things happen. Ask: What else does this mean? See life's obstacles as temporaty setbacks, not disasters.Our race, in its poverty, has unquestionably one really effective weapon - laughter... Against the assault of laughter nothing can stand.
（Live in the present）
The superior man does not waste himself on what is distant, on what is absent. He stands in the here and now, in the real situation.
Stay in the present and enjoy life today.
(Be curious and open-minded. Always ask why)
Curiosity is one of the permanent and cetain characteristics of a vigorous mind.
Sit down before facts like a child, and be prepared to give up every preconceived Notion, follow humbly wherever and to whatever abysses Nuture leads, or you shall learn nothing.
A child is curious and asks why? As grown-ups we seem to forget the whys and accept what others say. We should all be children again and see the world as if through the eyes of a curious child without preconceptions.
Ask: What is my nature? What motivates me? What is my tolerance for pain and risk? What has given me happiness and unhappiness in the past? What things and people am I comfortable with? What are my talents and skills? Do I know the difference between what I want and what I'm good at? Where do I have an edge over others? What are my limitations?
Honesty is the first chapter of the book of wisdom.
Always do right. This will gratify some people and astonish the rest.
If you tell the turth you don't have to remember your lies.
More often we've made extra money out of morality. Ben Franklin was right for us. He didn't say honesty was the best morals, he said that it was the best policy.
The content of your character is your choice. Day by day what you choose, what you think, and what you do is who you become. Your integrity is your destiny... it is the light can guides your way.
Would I be willing to see my action immediately described by an informed and critical reporter on the front page of my local paper, there to be read by my spouse, children and friends？
Good character is very efficient. If you can trust people, your systems can be way simpler. There's enormous efficiency in good character and dis-efficiencyh in bad character.
(Act as an exemplar)
Wealth is a blessing to those who know how to use it, a curse to those who don't.
(Treat people fairly)
The only way to be loved is to be lovable. You always get back more than you give away. If you don't give any you won't get any.
Respond intelligently even to unintelligent treatment.
All that I think is that you will excite anger, and that anger so completely blinds every one that your arguments would have no choice of influencing those who are already opposed to our views.
Do the best that you can do. Never tell a lie. If you say you're going to do it, get it done. Nobody gives a shit about an excuse. Leave for the meeting early.Don't be late, but if you are late, don't bother giving people excuses. Just applogize... Return our calls quickly. The other thing is the five-second no. You've got to make your mind up. You don't leave people hanging.
Be happy while you're living, fr you are a long time dead.
Life, if you know how to use it, it long.
It matters not how a man dies, but how he lives. The act of dying is not of importance, it lasts so short a time.
You can either do what you love or love what you do. I don't see there's any other choice.
We all have 24 hours in the day. We can't save time, only speed it wisely or foolishly. How do we use our time? What is the best use? What do we want out of life? Do we live in a way to make that possible? The shorter the list, the more likely it is to focus on things that matter. Know what we want and don't want. Do we do what we want to do or what others expect us to do? Who or what is most important in our life? Do we have a sense of meaning.
Part of avoiding misjudgements and improving our lives is having the right attitude toward life. Since people are different, there is no one-size-fits-all strategy. We each must figure out our own style. But there are guidelines that applly to us all.
We should act in a way that agrees with our nature, advantages and limitations and we should establish some values.
To know that we know what we know, and tha we do not know, what we do not know; that is true knowledge.
You have to stick within what I call your circle of competence. You have to know what you understand and what you don't understand. It's not terribly important how big the circle is. But it's terribly impotant that you know where the perimeter is.
By working backwards we can easier see how and if something may work.
A life without adventure is likely to be unsatisfying, but a life in which adventure is allowed to take whatever form it will, is sure to be short.
Reflect on what can go wrong. Ask: What may cause this to turn into a catastrophe? What is the potential downside? What should I worry about? What is the likehood and magnitutde of a possible loss? What's the worst things that could happen? What can I do to prevent it? What will I do if it happens?
The simple fact is that you can't tell whether an idea is likely to work unless you consider all the possible negatives...
The best way to minimize risk is to think.
I think it's possible for a great many people to live a life like that where there isn't much risk of disaster and where they're virtually sure to get ahead a reasonable amount. It takes a lot of judgement, a lot of discipline and an absence of hyperactivity. By this method, I think most intelligent people can take a lot of risk out of life.
Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success.
If we can't tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds.
Ask: What is the cost of being wrong versus the benefit of being right compared to other investment opportunities?
Margin of safety
We try to arrage so that no matter what happens, we'll never have to go back to go.
We can't predict what is going to happen in life. Never underestimate the chance of rare events.
We have a better chance of avoiding misjugment and improving our lives if we have the right attitude and follow certain values.
A lot of success in life and success in business comes from knowing what you really want to avoid - like early death and a bad marriage.
Whenever we try to achieve a goal, solve problems, predict what is likely to happen or likely to be true or false, we should think things through backwards.
Thinking backwards, we can determine what actions must be avoided.
What don't I want to achieve? What causes the non-goal? How can I avoid that? Wht do I now want to achieve? How can I do that?
When we tell people what to avoid, we should end with what we want them to achieve.
Wise man profit more from fools than fools from wise men; for the wise man shun the mistakes of the fools, but fools do not inimate the success of the wise.
To reduce mistakes, we should study failures with severe consequences. Both in business and in life. We should look at their causes over time and see if they are unchanged.
Often we learn more from understanding why something doesn't work than from why it does. Studies also show that dramatic error-story training is an effective method of learning. Errors are salient and memorable. Studying errors encourage effortful thinking, and improves our capacity to deal with changes and new or unusual situations. Ask: Why did that happen? Why do certain businesses lose money or fail? Why do smart people engage in foolish behavior? Why do certain accidents happen? What was the mistake that caused bad performance? What circumstances were presented? What's the lesson?
When we know this, we should ask: What people or busineeses are doing things that history has proven causes failure? How can we best avoid what we don't want to happen? How can we create the best conditions to avoid mistakes? How can we prevent causes that can't be elimated? How can we limit the consequences of what we want to avoid? How can we limit the probability of what we want to avoid?
Let us start with what is being seeked and assume that we already found it.
(Finding evidence from the past)
Study the past if you would divine the future.
Observation. Will past/present behavior continue? How long can it continue?
Explanation: Why did it happen in the past or why does it happen now? How did it happen?
Predictability: How predictive(representative) is the past/present evidence for what is likely to happen in the future?
Continuation and Change: What is required to make the past/present record continue or to achieve the goal? What must happen? What must not happen? What forces can change it or cause what we don't want? Likely? Antidotes to what we don't want to happen?
Certainty and Consequences: How certain am I? What single event am I betting on that must happen or not happen? What are the consequences of being wrong?
(Falsify and disprove)
All our commonsense ideas should always be open to criticism.
No number of experiments can prove me right; a single experiment can prove me wrong.
Engage in self-criticism. Question your assumptions. Explain the opposite of your beliefs. Ask: Assume I'm wrong, how will I know? Why may an opposite theory be correct? Assuming my answer is correct, what would cause me to change my mind? Then, look for that evidence.
Often we don't see our weaknesses and thus are not motivated to improve . Therefore, encourage the right people to give objective feedback that will help us improve.
Look back and measure how you are doing aganist your original expectations. Find your mistakes early and correct them quickly before they cause harm.
It is undesirable to believe a proposition there is no ground wahtsoever for supposing it true.
(The metods of knowledge)
There are in facts two things: science and opinions; the former begets knowledge, the latter ignorance.
Do what scientists do: Strive for objectivity. Scientists try to describe the world as it is, not as they want it to be. They seek to answer why and how questions and try to predict natural phenomena and processes by using methods of scientific integrity.
Science is the great antidote to the poison of enthusiasm and superstition.
Problem or observation - We try to figure something out. We have a problem or we observe some phenomena and wonder what happens and why.
Guess why - We try to find a possible solution or an explanation that can be proved or disproved by testing it against experiment and observation.
Predict consequences - We work out all logical consequences of our guess and see what would be implied if our guess was right.
Test - If I do this, what will happen? Testability is key.
It does not make any difference how beautiful your guess is. It does not make any difference how smart you are, who made the guess, or what his name is - If it disagrees with experiment it is wrong.
You have to have some idea of why you're looking for the information. You have to start with some ideas of reality. And then you have to look to see whether waht you're seing fits in with that basic thought structure.
If we face two possible explanations which make the same predictions, the one based on the least numebr of unproven assumptions is preferable, until more evidence comes along.
Theories should be as simple as possible, but no simpler.
To talk sense, is to talk in quantities. It is no use saying that the nation is large - How large? It is no use saying that radium is scarce - How scarce?
When we translate something into numbers we can make comparisons. How can we evaluate if a deicision is intelligent or not if we can't measure it aganist a relevant and important yardstick?
Don't overweigh what can be counted and underweigh what cannot. Beware of false concreteness - often we believe that data based on figures with lots of decimal places are more accurate than words alone.
Everyone overweights the stuff that can be numberred, because it yields to the statistical techniques they're taught in academia, and doesn't mix in the hard-to-measure stuff that may be more important.
We can't expect to get a higher return on investment over time than the underlying business produces on its invested capital over time.
When we buy a stock, we always think in terms of buying the whle enterprie because it enables us to think as businessman rather than stock speculators.
Whether a business tells nails or telecom equipment, if more moeny is going out than coming in, on a present value basis, it is worthless.
Value is destroyed, not created, by any business that loses money over its lifetime, no matter how high its interim valuation may get.
You can't get more out of a business between now and its extinction than the business makes.
The key thing in economics, whenever someone makes an assertion to you, is to always ask, And then what? Actually, it's not such a bad idea to ask it about everyhing. But you should always , And then what?
In the department of ecnomony, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate, it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen... Between a good and a bad economist this constitutes the whole difference - the one takes account of teh vasible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.
(Four key things)
1.Pay attention to the whole system. Direct and indirect effecets.
2. consquences have implications or more consequences, some which may be unwanted. We can't estimate all possible consequences but there is at least one unwanted consequnece we shold look our for.
3. Consider th effects of feedback, time, scale, repetition, critical threshoulds and limits.
4. Different alternatives have different consequences in terms of costs and benefits. Estimate the net effects over time and how desirable these are compard to what we want to achieve.
Judge an action by its net consequences over time considering the whole system. Follow up changes in individual variables by determining how the rest of the system will respond over time. Reducing risk in one area may increase it in another. Changes in one variable may change the entire system. One change may cause another chagne causing antoher, etc. This includes considering short and long-term consequences since there may be a long time between an action and its full effects.
Extreme justice is extreme injustice.
If we'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 speed much time with the other. And that's the way we filter out buying opportunities.
If we make a decision to do one thing we are deciding not to do some other available thing.
The cost of using a limited resource like time, effort and money for a specific purpose, can be measured as the value or opportunity lost by not using it in its best available alterantive use.
We all have a lot of things we like: our spouse, job, house, car, investments, etc. When we decide whether to change something, we should measure it aganist the best of what we already have.
A complementary filter to evaluate alterantives is to list their respective pros and cons and then weight all the points.
Look for someone who will love you unconditionally and will subtly encourage you to be better than you though you can be.
Make up a list of reasons for and aganist the assign them weights.
All decisions are not equally important. Some decisions have a greater influence on our lives. A decision we make today that will influence our lives ten years from now is far more important than one that will influence us only today. If we make a mistake in choosing the wrong vacation, the consequences over time will most likely be mirror. But if, for example, we choose the wrong spouse, the wrong education, carer, friends, or investment, it may harm us a long, long time.
Our plan miscarry because they have no aim. When a man does not know what harbor he is heading for, no wind is the right wind.
Do we know what we want to achieve and why?
Are we not more likely to hit the mark if we have a target?
Even if we don't know what we want, we often know what we don't want, meaning that our goal can be to avoid certain things.
Clearly defined. Be concrete.
Foucus on results.
Realistic and logical - what can and can't be achieved? Low goals may produce low performance and unrealistic goals may cause people to cheat. Never work either for useless goals, or impssible ones.
Tailored to our individual needs.
Subject to change. Ask: Given our current objective, what is the best course of action to take?
Goals need target dates and control statiosn measuring the degree to which the goal is being achieved.
Always ask: What end result do I want? What causes that? What factors have a major impact on the outcome? What single factor has the most impact? Do I have the variables needed for the goal to be achieved? What is the best way to achieve my goal? Have I considered what other effects my actions will have that will influence the final outcome?
When we solve problems and know what we want to achieve, we need to prioritize or focus on the right problems. What should we do first? Ask: How serious are the problems? Are they fixable? What is the most imprtant problem? Are the assumptions behing them correct? Did we consider the interconnectness of the problems? The long-term consequences?
Since big effects- bad or good - happen when we optimize some factors or combine many factors, we should use whatever factors necessary to achieve our goal.
Rules and Filters
Rules are for the obedience of fools and the guidance of wise men.
(What can help us avoid problems and act as guidelines when making decisions?)
Based on our knowledge of reality and our personal situation we should establish some "what to do" and "what to avoid" rules.
To apply myself industriously to whatever business I take at hand, and not divert my mind from my business by any foolish project of growing suddenly rich; for industry and patience are the surest means of plenty.
Walk away from anything I don't understand or can't quantify or doesn't work. Only deal with people I trust.
Just as the case of investing, insurers produce outstanding long-term results primarily by avoiding dumb decisions, rather than by making briliant ones.
We really can say no in 10 seconds or so to 90%+ of all the things that come along simply because we have these filters.
A more mechanical prediction process involving a small number of relevant variables is more reliable than the predictions of trained and experienced experts.
4 criteria as filters
-Can I understand it? If it passes this filter,
-Does it look like it has some kind of sustainable competive advantage? If it passes this filter,
-Is the management composed of able and honest people? If it passes this filter,
-Is the price right? If it passes filter, then we writes a check.
What does Warren Buffett mean by "understanding"? Predictability: "Our definition of understanding is thinking that we have a reasonable probability of being able to assess where the business will be in 10 years."
Elimate possibilities and get down to the few that have any chance of success. Look for certain thngs that narrow down the possibilities.
-Different issues need different checklists.
-A checklist must include each critical item necessary for safety and avoiding accidents so we don't need to rely on memory for items to be checked.
-Readily usable and easy to use.
-Agree with reality.
第8章 战MSN 荣誉与命运
(Focus on what you can know and that makes a difference)
Before attacking a problem ask if it is worth solving or spending time on.
There are two questions you ask yourself as you look at the decision you'll make. A) is it knowable? B) is it important? If it is not knowable, as you know there are all kinds of things that are important but not knowable, we gorget about those. And if it's unimportant, whether it's knowable or not, it won't make any difference. We don't care.
(Ask the right questions)
The formulation of a problem is often more essential than its solution, which may be merely a matter of mathmatical or experimental skill.
It's not that I'm so smart; it's just what I stay with problems longer.
The best thinking is often done when there is no stress, time limit, threats, or judging. Thinking takes time and the simple truths often reveal themselvs when we're doign something else.
We are more likely to solve a specific problem or gain new insight if we leave the problem alone for awhile and let our subconscious mind work.
Buffett's genius was largely a genius of character - of patience, discipline and rationality... His talent sprang from his unrivaled independece of mind and ability to focus on his work and shut out the world.
Having patience in waiting for opportunities. resist the temptation to always do something. If we are in a hurry, it's easier to make misjudgements. This is key in investing. In allocating capital, activity does not correlate with achievement. Indeed, in the fields of investments and acquisitions, frenetic behavior is often counterproductive. If you feel like you have to invest every day, you're going to make a lot of mistakes. It isn't that kind of a business. You have to wait for the fat pitch.
《文明..》 李录 02/15
《Reality is Broken》二刷完成
《Designing Your Life》 04/04
《The Intelligent Investor》 04/14