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Table of Contents

PART I – CHARLIE’S THOUGHTS ON SUCCESSFUL INVESTING

# 1 FAST MONEY

Trying to get rich fast is dangerous because we have to gamble on the short-term price direction of some stock or other asset. There are a huge number of people trying to do the same thing, many of whom are much better informed than we are. The short-term price direction of any security or derivative contract is subject to all kinds of wild price swings due to events that have nothing to do with the actual long-term value of the underlying business or asset. (Location 139)

Note: Short term price swings often have nothing to do with the long term value of a stock

# 2 CIRCLE OF COMPETENCE

“Knowing what you don’t know is more useful than being brilliant.” (Location 149)

Note: Competence

Sometimes the shortsighted stock market serves up an investment opportunity that is so obvious it is hard to resist. This usually happens when there is a stock market panic and investors are fleeing any and all investments, even the ones with great long-term economics working in their favor. This fleeing of investors is the draining of the barrel—stock prices drop, which makes it easier for Charlie to see the fish: underpriced great businesses. (Location 178)

Note: Buy stocks whhen prices drop

The crash of 1932 was completely unexpected and the worst in the twentieth century. It drove stock prices down by 89%. If you had $1,000 invested in the Dow on September 3, 1929, it would have gone down to $109 by July 8, 1932. (Location 208)

Tags: stockcrash

Note: .stockcrash

“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.” (Location 255)

Tags: gambling, stocks

Note: .stocks .gambling

“You should remember that good ideas are rare—when the odds are greatly in your favor, bet heavily.” (Location 279)

Tags: bet

Note: .bet bet heavily when the odds are in your favour

Both Charlie and Warren let cash pile up, waiting for a recession/crash, even if it means getting low rates of return on their cash holdings as they wait for the inevitable. When the crash hits, they make their purchases. (Location 312)

Tags: cash

Note: .cash hold cash so you can invest when the market crashes

The crashes of 1929 and 1932 decimated stock prices so badly that it took until 1954 for the Dow Jones Industrial Average to return to its 1929 high. Many people lost their entire fortunes. That soured the investing public on common stocks for almost thirty years. (Location 332)

Tags: stock crash

Note: After a market crash many folk may be wary for years

“I think that, every time you see the word EBITDA, you should substitute the word ‘bullshit earnings.’ ” (Location 364)

Tags: ebitda

Note: .ebitda

Depreciation is a cost that has to be paid at a later date—for example, when a plant and equipment eventually need replacing. That eventual replacement is a capital cost. And capital costs can destroy what otherwise appears to be a really great business. (Location 367)

Tags: capital, depreciation

Note: Be wary of high capital costs

The old Benjamin Graham method of buying undervalued stocks required an investor to set a valuation on a company and then, when the company reaches that valuation, sell it. This approach fails because it requires us to sell not only mediocre companies as they approach their valuation but also great businesses that have a durable competitive advantage, thus killing all opportunity to profit from the expansion of the underlying value of a business that occurs over time. (Location 498)

“View a stock as an ownership of the business and judge the staying quality of the business in terms of its competitive advantage.” (Location 510)

“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. There must be some wisdom in the folk saying: ‘It’s the strong swimmers who drown.’ ” (Location 537)

Tags: mistakes, problemprovention

Note: .problemprovention .mistakes avoid mistakes

I remember sitting at the Berkshire Hathaway 1998 Annual Meeting listening to shareholder after shareholder question why Charlie and Warren weren’t investing in anything—everything was going up—and they just sat there saying over and over again that stock prices were too high. And when the bust occurred in 2000, and everyone was running for cover, they were in a position to buy and buy big. They did the exact same thing in 2008. How do we know when the stock market is too high? When the financial press starts writing articles about how Charlie and Warren have lost their Midas touch. (Location 576)

Note: If the press is saying that charlie and warren have lost their touch then you know the stock prices are too high

Investors are often wrong about business valuations; most of the time they think a company is worth far more than it will ever earn. But that doesn’t help us; what helps us is when they do just the opposite, when they think that a business is worth far less than its long-term economics indicate and therefore misprice it on the downside. It’s the mispricing on the downside that gives Charlie his buying opportunities. And that is something the investing herd manages to do in a big way about once every eight to ten years. (Location 584)

Note: When people misprice too low that is the time to buy

the only way that Charlie can do that is if he is sitting on a pile of cash in waiting to take advantage of some financial calamity. The reason that other investors don’t step in is that they don’t have the cash to buy anything with. Most investment funds are 100% invested in the market. Why are they 100% invested? Because cash offers a low return and having a lot of cash can severely hurt a fund’s performance. (Location 630)

Tags: investmentfunds

Note: .investmentfunds investment funds cant wait to find great deals because cash has low returns and they need high returns. They cant sit on cash waiting for a good opportunity

from a long-term perspective individual companies have moments of inefficiency when the shortsighted “efficient” stock market misprices them relative to their underlying long-term economics. (Location 645)

It is difficult but not impossible to do better than the stock market average. But it takes a lot of reading to get there. For most people it is easier and safer if they just save their money, buy into an index fund anytime there is a bear market, and then just hold it forever. Then when they retire, they can sell it off as needed. (Location 728)

Tags: indexfund

Note: .indexfund

PART II – CHARLIE ON BUSINESS, BANKING, AND THE ECONOMY

During the Great Recession of 2007–09, worldwide GDP fell 1%; during the Great Depression, worldwide GDP fell by 15%. During the Great Depression, the United States experienced a 50% drop in foreign trade and a 60% drop in crop prices, and unemployment rose to a high of 25%. The European economies were decimated to the point that it caused entire nations to lose faith in their democratic institutions, which gave birth to the rise of fascism in a desperate attempt to fix the seemingly unfixable. The end result was a world war that caused Europe and the rest of the world to suffer unimaginable horrors of death and destruction. (Location 747)

Tags: war, economy, greatdepression

Note: .greatdepression .economy .war economic collapse played a large role in the world war 1

Inflation raises the prices of both commodities and assets, and shares in a company represent ownership in the company’s assets. Inflation is the friend of people who own assets. Inflation is also the enemy of the people who own cash or bonds. (Location 853)

Tags: inflation

Note: .inflation inflation is bad for cash and good for stocks

Charlie and Warren are so big on insurance companies and banks: not only are they the perfect hedge against inflation, they actually benefit from it. For banks and insurance companies, inflation truly is the gift that keeps on giving. (Location 864)

Tags: inflation

Note: .inflation

when our oil is completely gone we will be at the mercy of the countries that are still oil producers. He advocates that we should save our oil for a rainy day and burn up Saudi Arabia’s oil instead. (Location 876)

Tags: us, oil

Note: .oil .us it may be better for the us to keep their oil reserves and use others oil whilst it exists

the Chinese government controls twenty-nine of the thirty largest publicly traded companies in China. (Location 950)

Tags: china

Note: .china

Want to know how Singapore and Hong Kong became the two financial centers of Asia? Low corporate taxes attracted rich corporations to them and with the rich corporations came their surplus capital, which was tucked away in local banks such as the OCBC Bank in Singapore and the Bank of China in Hong Kong, where it has been used to help finance the economic miracles of Singapore and Hong Kong. (Location 998)

Tags: corporatetax, hongkong

Note: .hongkong .corporatetax

PART III – CHARLIE’S PHILOSOPHY APPLIED TO BUSINESS AND INVESTING

“A great business at a fair price is superior to a fair business at a great price.” (Location 1061)

Note: Factor in growth rate, ratio of share price to earnings, Earnings per share

Charlie learned that with certain products one can raise prices and demand doesn’t drop. Most of the things we buy in life are commodities. They are interchangeable: a steak from butcher X is similar to a steak from butcher Y. The gas we buy from one station is the same as the gas from another station. As a result the competition between butchers and gas stations is based on price. That makes it very hard to raise prices. But some brand-name products own a piece of consumers’ minds and don’t have any direct competition. (Location 1108)

Tags: brands

Note: .brands strong brands rely less on price and can raise their prices more easily

Borrowing short term at cheap rates and lending it out long term at higher rates is an easy way to make tons of money as long as one can keep rolling over the short-term loans at cheap rates. (Location 1184)

Tags: loans

Note: .loans

Liquidity is the measure of how easy it is to turn assets into cash, in this case how easy it is to sell shares for cash. The more active the market there is for certain shares, the more liquid those shares are. (Location 1304)

Tags: liquidity

Note: .liquidity

PART IV – CHARLIE’S ADVICE ON LIFE, EDUCATION, AND THE PURSUIT OF HAPPINESS

If you have a grasp of science, you can appreciate that the fast-changing world of computer technology might not be the most stable environment for a long-term investment. (Location 1352)

“I have never succeeded very much in anything in which I was not very interested. If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much, even if you’re fairly smart.” (Location 1457)

Tags: passion, success

Note: .success .passion its easier to be successful in something you have interest in

As Steve Jobs said, “Work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” (Location 1463)

Tags: passion, career

Note: .career .passion

From an investing perspective, it was only with Charlie’s help that Warren broke his chains of habit and ideology and finally set aside the Graham approach of investing in mediocre companies at bargain prices. He began to invest in great companies at fair prices and holding them forever. (Location 1477)

In the trades and professions, whether one is a plumber, a lawyer, a dentist, a roofer, or a surgeon, it is the people with problems who are going to bring in the business. Which is one of the reasons that Charlie got out of the law business. (Location 1539)

Tags: professionals

Note: .professionals

playwright George Bernard Shaw once said, “All professions are a conspiracy against the laity.” (Location 1567)

Tags: professions

Note: .professions

“In my whole life, I have known no wise people who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” (Location 1632)

Tags: reading

Note: .reading charlie munger

“It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.” (Location 1736)

Tags: argument, opinion