Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life was written by William Green. He is a journalist, fascinated by great investors. He distills principles and advice from several renowned figures in the investment world. It’s a valuable resource for exploring philosophies that align with or complement Buffett’s approach.
This book is worth re-reading, as it offers a wealth of insights. What stands out to you during each reading can vary depending on what you’re experiencing in your life at that time, making it a continually rewarding resource.
Mohnish Pabrai
- Be a Shameless Copycat: “When you see someone doing something smart, force yourself to adopt it”. On why others aren’t as good at copying: “They’re not as shameless as me. They have more ego. To be a great cloner, you have to check your ego at the door.”
- “We don’t get paid for activity, just for being right.” – Buffett
- Do You Live by the Outer or Inner Scorecard?: “Would I rather be the worst lover in the world and be known publicly as the best, or the best lover in the world and be known publicly as the worst?”
- Simplicity vs. Complexity: “Intelligent people are easily seduced by complexity while underestimating the importance of simple ideas that carry tremendous weight.”
Buffett’s 4 Filters for Investing
- Circle of Competence: Invest only in companies that you fully understand.
- Margin of Safety: Buy at a significant discount to intrinsic value, aiming for a clear potential to double in value within a few years.
- Quality Businesses: Focus on companies with a durable competitive advantage and strong, honest leadership.
- Clear Financials: The company’s financial statements should be straightforward and easy to understand.
Choosing the Right People
“When I meet someone for the first time, I evaluate them afterward and ask, ‘Will it make me better or worse to have a relationship with this person?’ If the answer is worse, I’ll cut them out.” Similarly, after a lunch meeting, he asks, “How did I enjoy that?” If the experience was unpleasant, “There will never be another lunch with that person again.” He adds, “Most people don’t pass the smell test.” The takeaway: Surround yourself with people who are better than you.
Deal Example:
“In 2005, Pabrai bet heavily on another no-brainer: a specialty steel producer called IPSCO Inc. He paid around $44 per share when the company had about $15 per share of excess cash on its books. Pabrai expected IPSCO to generate around $13 per share of excess cash in each of the next two years, giving it a total of $41 per share in cash. With the stock trading at $44, he was effectively buying all of IPSCO’s steel plants and other assets for only $3 per share. Although he couldn’t predict the company’s earnings beyond the next two years, the stock was so cheap that there was minimal risk of losing money. When he sold in 2007, his $24.7 million investment was worth $87.2 million—a 253 percent return in twenty-six months.“
John Templeton
The Templeton Growth Fund, established in 1954, achieved an impressive average annual return of 14.5% over 38 years. This remarkable performance means a $100,000 investment would have grown to over $17 million during that period—an extraordinary example of the power of compound interest.
When asked what distinguished investors like Buffett and Templeton, Michael Lipper said: “The willingness to be lonely, the willingness to take a position that others don’t think is too bright. They have an inner conviction that a lot of people do not have.”
Templeton’s Rules for Investing:
- Beware of Emotions: Allowing optimism to overshadow caution can lead to significant losses.
- Acknowledge Your Ignorance: Fully understand what you’re buying; recognize the limits of your knowledge.
- Diversify: “Diversify broadly to protect yourself from your own fallibility.”
- Practice Patience: Investing requires a long-term outlook.
- Seek Bargains in the Right Places: “The best way to find bargains is to study whichever assets have performed most dismally in the past five years, then assess whether the cause of those woes is temporary or permanent.”
Finally, he offered this timeless warning: “The four most expensive words in the English language are ‘This time is different.'”
Howard Marks – Oaktree capital
Recognizing Opportunities Even in the Darkest Times
Howard Marks is known for his keen ability to identify opportunities during periods of severe market distress. He once addressed the uncertainty of extreme market downturns by saying, “Will the financial system melt down, or is this merely the greatest down cycle we’ve ever seen? My answer is simple: we have no choice but to assume that this isn’t the end, but just another cycle to take advantage of.” In his typical dry humor, he added, “Most of the time, the end of the world doesn’t happen.”
When asked what prompted his shift from a defensive to an aggressive investment stance in mid-September, Marks explained, “The world went to hell. Assets were being given away. Nobody had any faith that the world would even exist tomorrow, and there were no buyers for any assets… It was a perfect storm of circumstances for disaster.”
Jean-Marie Eveillard
Poor Incentives in the Mutual Fund Industry
Mutual fund executives often face incentives that prioritize asset gathering over long-term performance. This focus on sales and marketing pushes fund managers to cater to investor demand, favoring short-term gains over sustainable investment strategies.
The Importance of Survival
Eveillard underscores the necessity of financial resilience. To minimize risk, he recommends following Buffett’s principles:
- Maintain enough cash reserves to avoid forced asset sales during downturns.
- Steer clear of excessive debt, which diminishes your ability to withstand market volatility.
- Avoid speculative stocks lacking a margin of safety and businesses with weak balance sheets or dependence on external funding that might evaporate in difficult times.
Four Lessons for Investors
Eveillard distills his wisdom into four essential lessons:
- You Don’t Need the Optimal Strategy: A sensible, “good-enough” strategy is sufficient for achieving financial goals. As General Carl von Clausewitz once said, “The greatest enemy of a good plan is the dream of a perfect plan.”
- Simplicity and Conviction: Your strategy should be simple, logical, and deeply aligned with your beliefs, enabling you to stick with it through tough times. It should match your tolerance for pain, volatility, and loss. Writing down your strategy and principles can help reinforce your dedication.
- Know Your Limits: Evaluate whether you possess the skills and temperament needed to outperform the market.
- Success Without Beating the Market: Remember that you can achieve wealth and investment success without needing to outperform the market.
Nick Sleep and Qais Zakaria – Nomad Fund
Nick Sleep is highly respected by investors such as Guy Spier and Mohnish Pabrai for his long-term investment strategy, which prioritizes the bigger picture over short-term market fluctuations.
Questions They Asked CEOs: Destination Analysis
Sleep and Zakaria’s approach centered on destination analysis, a practice that involves asking forward-thinking questions:
- What is the intended destination for this business in ten or twenty years?
- What must management do today to increase the likelihood of reaching that destination?
- What could prevent the company from achieving this favorable outcome?
While Wall Street often obsesses over short-term metrics like quarterly profits and price targets, Sleep and Zakaria focused on the critical inputs needed for a business to fulfill its potential. They explored:
- Is the company strengthening its relationship with customers by offering superior products, competitive prices, and efficient service?
- Is the CEO making rational capital allocation decisions that enhance the company’s long-term value?
- Is the company avoiding shortsighted practices like underpaying employees, mistreating suppliers, or betraying customer trust that could endanger its future success?
Their Favorite Mental Model for Investing: “Scale Economies Shared”
Scale economies shared
- Concept: The model revolves around businesses growing sustainably by sharing the benefits of economies of scale with their customers.
- Cycle: Increased revenues lead to cost savings from economies of scale, which allow for lower prices. Lower prices then fuel further revenue growth, perpetuating the cycle.
Companies that embrace this model often have cultures shaped by visionary founders who are passionate about details, customer experience, and long-term investments, even under significant pressure to deliver quick results. These leaders typically stand apart from conventional practices, resisting Wall Street’s demands for immediate profits.
Legendary Figures Who Exemplify This Approach
- Sam Walton at Walmart
- Jim Sinegal at Costco
- Herb Kelleher at Southwest Airlines
- Rose Blumkin at Nebraska Furniture Mart
Rose Blumkin, a Russian immigrant who worked from the age of six until beyond her hundredth birthday, built the largest home-furnishings business in the U.S. by adhering to three simple principles: “Sell cheap, tell the truth, don’t cheat nobody.”
This approach demonstrates the power of delaying gratification and committing to long-term success over immediate financial gains.
Charlie Munger
The Value of Collecting Mistakes
Charlie Munger emphasizes the importance of actively collecting examples of others’ foolish behavior as an invaluable antidote to making your own mistakes. This habit is one of Munger’s key strategies for avoiding stupidity. He also suggests collecting your own mistakes and confronting them regularly to ensure you don’t repeat them.
Countering Confirmation Bias
To counteract confirmation bias and foster well-rounded thinking, Munger suggests several techniques:
- Find a Logical Sparring Partner: Engage in discussions with someone logical and trustworthy, much like Munger and Buffett do with each other.
- Play the Devil’s Advocate: Deliberately argue the opposite side of your own view to challenge your thinking.
- Engage with Opposing Views: Discuss your ideas with people who hold different opinions before making decisions.
- Conduct a Premortem: Imagine that a project has failed and identify the reasons why it might have gone wrong.
- Practice Inversion: Think through scenarios where things could go wrong or where you achieve the opposite of your desired result.
- Question Your Assumptions: Regularly ask yourself, “Why might I be wrong?”
- Adopt Falsification: Continuously attempt to disprove your own hypotheses to refine your decision-making.
Munger also emphasizes the importance of preparing for inevitable market downturns: “If you’re going to be in this game for the long haul, you better be able to handle a fifty percent decline without fussing too much about it. My lesson to you is, conduct your life so that you can handle that decline with aplomb and grace. Don’t try to avoid it; it will come. If it doesn’t, you’re not being aggressive enough.”
Shubin Stein’s HALT-PS Acronym
Shubin Stein created the acronym HALT-PS to encapsulate the most common triggers for poor decision-making, as highlighted in psychological studies: Hunger, Anger, Loneliness, Tiredness, Pain, and Stress. To minimize the risk of making flawed choices, avoid decision-making when experiencing any of these states. Maintaining a healthy lifestyle is crucial for fostering the right environment for sound judgment.
“There are four things that we know improve brain health and brain function,” Stein explains. “Meditation, exercise, sleep, and nutrition.”
Additional Sources
- Power vs. Force: The Hidden Determinants of Human Behavior by David Hawkins
- Zen and the Art of Motorcycle Maintenance by Robert M. Pirsig
- Damn Right!: The Biography of Charlie Munger by Janet Lowe
- The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks
- Nick Sleep and Qais Zakaria shareholder letters