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Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life
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By William Green
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Amazon: Link
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#Pg.TC Highlight
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143At fifteen, when I was a student at Eton, I’d sneak out of school on lazy summer afternoons and spend hours at a local “turf accountant” near Windsor Castle, betting on horses while my classmates played cricket or went rowing. I was meant to become a posh English gentleman like Boris Johnson, Prince William, and six centuries of Etonians before us. Instead, I had an illegal betting account under the name of Mike Smith. My interest in horse racing was fueled not by the romance of the sport or the majesty of the equine form, but by a desire to make money without working.
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280One morning, I was standing beside him when he rang his office to check in. The analyst on the other end of the line broke it to him that AES, a stock that Miller had only just bought, had announced terrible earnings. The stock halved, costing him $50 million before lunchtime. Miller instantly doubled his bet, calmly assuming that irrational investors had overreacted to the company’s dismal news. As he explained to me, investing is a constant process of calculating the odds: “It’s all probabilities. There is no certainty.”
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389First, warned Ruane, “Do not borrow money to buy stocks.” He recalled an early experience when, by using leverage, he “took six hundred dollars and multiplied it many times.” Then “the market cracked” and he was hit so hard that he sold out and was “back almost to square one.” As he discovered then, “You don’t act rationally when you’re investing borrowed money.” Second, “Watch out for momentum.” That’s to say, proceed with extreme caution “when you see markets going crazy,” either because the herd is panicking or charging into stocks at irrational valuations. Third, ignore market predictions: “I firmly believe that nobody knows what the market will do.… The important thing is to find an attractive idea and invest in a company that’s cheap.”
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4124As I’ve come to realize, it’s helpful to view investing and life as games in which we must consciously and consistently seek to maximize our odds of success.
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5205A wise man ought always to follow the paths beaten by great men, and to imitate those who have been supreme, so that if his ability does not equal theirs, at least it will savor of it. —Niccolò Machiavelli
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6261As a child, Pabrai performed poorly at school, once placing sixty-second in a class of sixty-five, and he suffered from low self-esteem. Then, in ninth grade, he was given an IQ test that changed his life. “I went to the guy who administered the test and said, ‘What does the result mean?’ He said, ‘Your IQ is at least one hundred eighty. You’re just not applying yourself.’ It was like someone whipping a horse and it starts. That was a big turning point. People have to be told they have something in them.”
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7306Along the way, I’ve come to appreciate the tremendous power of his method of reverse engineering, replicating, and often improving on other people’s successful strategies. Pabrai, the most relentless cloner I’ve ever encountered, has taken the art of appropriation to such an extreme that, paradoxically, it seems oddly original. His thinking has had a profound impact on me. In fact, the overarching purpose of this book is to share what I would call “ideas worth cloning.”
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8390When there’s nothing to buy and no reason to sell, he can also direct more attention to his charitable foundation. He says it helps that his investment staff consists of a single person: him. “The moment you have people on your team, they’re going to want to act and do things, and then you’re hosed.” In most fields, a hunger for action is a virtue. But as Buffett said at Berkshire’s 1998 annual meeting, “We don’t get paid for activity, just for being right.”
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9412As it happens, Buffett had borrowed this fee structure from Graham, who used it in the 1920s. No stranger to cloning, Buffett has said, “If you learn, basically, from other people, you don’t have to get too many ideas on your own. You can just apply the best of what you see.” Part of the challenge is to discern the best and jettison the rest, instead of blindly cloning everything. For example, Graham was a devout believer in diversification, whereas Buffett got rich by focusing his bets on a much smaller number of undervalued stocks.
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10419Buffett is a master of this practice of high-speed sifting. “What he’s looking for is a reason to say no, and as soon as he finds that, he’s done,” says Pabrai. Indeed, Buffett has said, “The difference between successful people and really successful people is that really successful people say no to almost everything.”
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11447His competitive advantage lies in the fact that he doesn’t care whether you or I think he’s derivative. All he cares about is what works. One evening, over dinner at a Korean restaurant in Irvine, I ask Pabrai why more people don’t clone in his systematic way. Between mouthfuls of a dish called “spicy beef danger,” he replies, “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.”
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12486Buffett had mentioned Guerin’s superb investment record in “The Superinvestors of Graham-and-Doddsville.” But Buffett told Pabrai and Spier that Guerin used margin loans to leverage his investments because he was “in a hurry to get rich.” According to Buffett, Guerin was hit with margin calls after suffering disastrous losses in the crash of 1973–74. As a result, he was forced to sell shares (to Buffett) that were later worth an immense fortune.IX By contrast, Buffett said that he and Munger were never in a hurry because they always knew they’d become enormously rich if they kept compounding over decades without too many catastrophic mistakes. Over his meal of steak, hash browns, and a Cherry Coke, Buffett said, “If you’re even a slightly above average investor who spends less than you earn, over a lifetime you cannot help but get very wealthy.”
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13507Pabrai had just come from a breakfast with Buffett and Munger and were giddily happy. During the flight, our main topic of conversation was this notion of living by an inner scorecard. As Pabrai saw it, “Probably ninety-nine percent of people on this planet wonder what the world thinks of them.” A tiny minority take the opposite view, which he poetically expressed as follows: “Fuck what the world thinks.”
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14523Pabrai approaches relationships with the same ruthless clarity about his own priorities. During their lunch, Buffett said, “Hang out with people who are better than you and you cannot help but improve.” Pabrai acts on this advice to a degree that would horrify many people. “When I meet someone for the first time, I evaluate them afterwards and say, ‘Will it make me better or worse to have a relationship with this person?’ ” If the answer is worse, he says, “I’ll cut him out.”
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15528Diplomacy is not his strong point, but Pabrai regards truthfulness as a higher concern. In the late nineties, he read a book titled Power vs. Force: The Hidden Determinants of Human Behavior by David Hawkins, which Pabrai describes as “a huge part of what I believe in.” Hawkins argues that “true power” stems from traits such as honesty, compassion, and a dedication to enhancing other people’s lives. These powerful “attractors” have an unconscious effect on people, making them “go strong,” whereas traits such as dishonesty, fear, and shame make them “go weak.” Pabrai took one specific lesson from Hawkins and determined to live by it. “You can’t get away with lying to other humans,” says Pabrai, “and that’s a very profound idea.”
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16543Intelligent people are easily seduced by complexity while underestimating the importance of simple ideas that carry tremendous weight. Pabrai, the ultimate pragmatist, doesn’t fall into this trap. “Compounding is a very simple idea. Cloning is a very simple idea. Telling the truth is a very simple idea,” he says. But when you apply a handful of powerful ideas with obsessive fervor, the cumulative effect “becomes unbeatable.”
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17558He’s also wary of bequeathing hundreds of millions to his daughters, having internalized Buffett’s advice that the ideal amount to give your kids is enough so they can do anything, but not so much that they can do nothing.
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18621As I considered Pabrai’s life and what I should learn from him, several principles particularly resonated with me. In my memo, I wrote: Rule 1: Clone like crazy. Rule 2: Hang out with people who are better than you. Rule 3: Treat life as a game, not as a survival contest or a battle to the death. Rule 4: Be in alignment with who you are; don’t do what you don’t want to do or what’s not right for you. Rule 5: Live by an inner scorecard; don’t worry about what others think of you; don’t be defined by external validation. Finally, quoting a line of Munger’s that Pabrai often cites, I wrote, “Take a simple idea and take it seriously.” Of all these lessons, that last one might just be the most important. Too often, we encounter a powerful principle or habit and we contemplate it, take it for a quick spin, and then forget about it. Pabrai becomes consumed by it. He lives by it. That’s a habit I have to clone.
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X19656It is impossible to produce superior performance unless you do something different from the majority. —Sir John Templeton
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X20673Michael Lipper, the president of an investment firm called Lipper Advisory Services, once remarked to me that Templeton, George Soros, and Warren Buffett shared one invaluable characteristic: “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.” That phrase—the willingness to be lonely—has stuck in my mind for many years. It eloquently conveys the critical idea that the best investors are not like other people. They are iconoclasts, mavericks, and misfits who see the world differently from the crowd and follow their own peculiar path—not just in the way they invest but in the way they think and live.
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21687Rochon’s theory is entirely unprovable, but there’s plenty of anecdotal evidence that the best investors are wired in unusual ways that may be financially advantageous. One famed investor who asked not to be quoted by name on this subject told me that many of his most successful peers are “kind of Aspergerish” and that almost all are “unemotional.” He points out that “it’s a help to be unemotional” when making unconventional bets that the crowd would consider foolish. He adds that people with developmental conditions such as Asperger’s syndrome “often have something else in compensation, and very often it’s numeracy.… Being unemotional and [numerate] is a great combination for investing.”
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22701“A necessary characteristic of great investors is that they can’t be overly influenced by what other people think,” says Davis. “The easiest way not to be overly influenced by what other people think is not to be that aware of what they think. If you don’t really notice that and don’t really care about what other people think, that will make it easier to be a great investor.” It follows, says Davis, that “a prevalent characteristic in great investors would be low emotional intelligence.” He observes that many of the best investors struggle when it comes to “bonding with others” and nurturing “warm attachments in their family life.”
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23986As we were leaving his office, a stranger accosted him in the parking lot and asked for money to pay an electricity bill. Templeton handed him $50 in return for a promise that the man would never again ask him for money. In the car, he explained why this was his standard operating procedure: “The type of person who runs out of money will keep on running out of money. And if he got it somewhere, he’ll keep on going back there.”
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241003It wasn’t just his money and his time that he managed with fierce self-discipline. He was also fixated on managing his mind. In Wisdom from World Religions, he returned over and over to the subject of “thought control.” In his daily life, he trained himself to focus on “productive thoughts” and “positive emotions” such as love, thanksgiving, service, and the contemplation of “the infinite good within ourselves and others.” Templeton was equally committed to banishing negative thoughts and emotions such as anger, doubt, worry, guilt, fear, hatred, and envy. One technique that he recommended was to replace any negative thought with the statement “I give thanks for the abundance of good in my life.” When faced with difficulties, he suggested uttering a phrase such as “This comes to bless me.” He also sought to eradicate any “aimless, undisciplined thinking” that failed to serve the “high aims” of his life. As Templeton put it, we have immense power to shape our lives by choosing “where we wish to place our focus, for what we focus on expands.”IV
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251143Marks drew a simple but life-changing lesson from these academic debates: if he wanted to add value as an investor, he should avoid the most efficient markets and focus exclusively on less efficient ones.
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261194Without luck, Marks would never have landed in these inefficient, bargain-rich markets. Without intellectual horsepower and independence of mind, he could never have exploited the opportunities he found there. “Look, luck is not enough,” he says. “But equally, intelligence is not enough, hard work is not enough, and even perseverance is not necessarily enough. You need some combination of all four. We all know people who were intelligent and worked hard but didn’t get lucky. It breaks my heart. People come to me all the time looking for jobs. They’re fifty years old, they lost their job, and they’re no less deserving.”
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271208One of his favorite insights is from the economist John Kenneth Galbraith, an intellectual hero of his, who said, “We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know.”
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281231Marks also eschews the idea of timing the market, given the impossibility of repeatedly predicting the right moments to jump in and out. He noted in one of his earliest memos that the average annual return for stocks from 1926 to 1987 was 9.44 percent, but “if you had gone to cash and missed the best 50 of those 744 months, you have would have missed all of the return.
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291274As a writer, I love this idea that the artist’s mission is to find order within the all-inclusive confusion and muddle of life. James likened this search for hidden structure to a suspicious dog’s efforts to sniff out “some buried bone.” The investor faces a similar challenge: life is endlessly confusing and complicated. But what if we could detect some underlying patterns within that infinitely complex web?
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301279“It’s very helpful,” Marks tells me, “to view the world as behaving cyclically and oscillating, rather than going in some straight line.” He believes that almost everything is cyclical. For example, the economy expands and contracts; consumer spending waxes and wanes; corporate profitability rises and falls; the availability of credit eases and tightens; asset valuations soar and sink. Instead of continuing unabated in one direction, all of these phenomena eventually reverse course. He compares these patterns to the swinging of a pendulum from one extreme to the other.
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311295He pulls from a bookshelf his inscribed copy of Galbraith’s book A Short History of Financial Euphoria and reads me his single favorite piece of financial writing, which explores the causes of market euphoria: “The first [cause] is the extreme brevity of the financial memory. In consequence, financial disaster is quickly forgotten. In further consequence, when the same or closely similar circumstances arise again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”
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321349In a 2006 memo, Marks quoted the ancient Taoist philosopher Lao-tzu: “To be strong, you have to be like water: if there are no obstacles, it flows; if there is an obstacle, it stops; if a dam is broken, then it flows further; if a vessel is square, then it has a square form; if a vessel is round, then it has a round form. Because it is so soft and flexible, it is the most necessary and the strongest thing.” For an investor, too, it’s a strength to be like water, adjusting to whatever we encounter. It sounds so simple, but human nature conspires to make it difficult. Almost all of us are swayed by the mood of the crowd, and we struggle most to act rationally in extreme situations when the stakes are highest.
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331582The following year, SoGen International roared back, returning 19.6 percent. Pretty good, right? Wrong. That year, the Nasdaq shot up 85.6 percent. Eveillard’s relative returns looked pitiful in an era when any buffoon could hit the jackpot, and his shareholders weren’t inclined to thank him for acting responsibly. On the contrary, his prudence started to seem like slow professional suicide. “To lag is to suffer,” says Eveillard. “It becomes psychologically painful, but also financially painful.… After one year, your shareholders are upset. After two years, they’re furious. After three years, they’re gone.”
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341623Graham, who had also suffered on the road to glory, wouldn’t have been surprised by the tale of Eveillard’s rise and fall and rise. Graham opened Security Analysis with a quote from the Roman poet Horace: “Many shall be restored that now are fallen and many shall fall that now are in honor.”
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351654In his 2018 letter to shareholders, Buffett added his own twist, pledging, “Charlie and I never will operate Berkshire in a manner that depends on the kindness of strangers—or even that of friends who may be facing liquidity problems of their own.… We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including such extremes as extended market closures.”
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X361672Kahn became Graham’s teaching assistant at Columbia in the 1920s, and they remained friends for decades. I wanted to know what he’d learned from Graham that had helped him to prosper during his eighty-six years in the financial markets. Kahn’s answer: “Investing is about preserving more than anything. That must be your first thought, not looking for large gains. If you achieve only reasonable returns and suffer minimal losses, you will become a wealthy man and will surpass any gambler friends you may have. This is also a good way to cure your sleeping problems.”
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371772Instead of assuming that successful businesses will grow in perpetuity, McLennan views them through a darker lens, which he has borrowed from science. “I happen to believe that everything is on a path to fade,” he says. “If you think of evolution, ninety-nine percent of species that have ever existed are extinct. And businesses are no exception.”
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381841Since 1979, the fund has averaged 12.46 percent a year, versus 9.35 percent for the MSCI World Index.VIII If you’d invested $100,000 in the Global Fund in 1979, it would have grown to $12.94 million in 2020, versus $4.05 million if you’d invested in the index—a difference of almost $9 million. That’s the beauty of compounding. Small advantages build over decades into an overwhelming margin of victory.
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X391860McLennan spent fourteen years at Goldman Sachs, working with some of the top performers on Wall Street. He initially wondered if the senior brass had some unique talent that set them apart. “What I learned over time is that often it was just the people who didn’t give up, who just kept learning, kept evolving, stuck to it, and were willing to live through adversity.” He sees the same trait among the best investors: “They just haven’t given up. They’re constantly captivated by cracking the code” and have the strength “to endure the inevitable periods of disappointment.”
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401876Second, to achieve resilience, it’s imperative to reduce or eliminate debt, avoid leverage, and beware of excessive expenses, all of which can make us dependent on the kindness of strangers. There are two critical questions to ask: “Where am I fragile? And how can I reduce my fragility?” If, say, all of your money is in one bank, one brokerage, one country, one currency, one asset class, or one fund, you may be playing with a loaded gun. With luck, you can get away with anything in the short term. With time, the odds rise that your vulnerability will be exposed by unforeseen events.
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411981As far back as 1977, the company’s first marketing brochure featured a photograph of a shiny red apple under the tagline “Simplicity is the ultimate sophistication.”
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422202Greenblatt knew that almost nobody would bother to analyze Host Marriott, let alone invest in it. “It just looked horrible,” he says. “It had a lot of debt. It was in a bad business. There was nothing good about it.” Moreover, it was too tiny for most institutional investors to hold, even if they could tolerate the stench. Existing shareholders of the Marriott Corporation would receive stock in Host Marriott when the spin-off was completed. But Greenblatt was sure they would sell in droves. So what did he do? He zeroed in on the ugly duckling. “The way you’re going to find bargains,” he says, is by searching for hidden value in assets “that other people don’t want.”
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432218As Graham had taught him, what mattered most was the margin of safety. If you bought a stock for much less than its intrinsic value, other investors would figure it out sooner or later and drive up the price. In the meantime, says Greenblatt, “I didn’t see how I was going to lose much money.” That’s precisely why he made such an aggressive bet. “You size your positions based on how much risk you’re taking,” he says. “I don’t buy more of the ones I can make the most money on. I buy more of the ones that I can’t lose money on.”
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442341You need a sensible strategy that’s good enough to achieve your financial goals. As the Prussian military strategist General Carl von Clausewitz said, “The greatest enemy of a good plan is the dream of a perfect plan.”
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452343Second, your strategy should be so simple and logical that you understand it, believe in it to your core, and can stick with it even in the difficult times when it no longer seems to work.
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462441For Zakaria, it was a sickening introduction to the investment business. “My father had made his money on things he understood and lost it on things he didn’t understand, and he was taken to the cleaners by very unscrupulous people.” These memories left Zakaria with a permanent suspicion of salespeople, get-rich-quick schemes, and the “casino” aspect of Wall Street.
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472515Anyone looking to achieve stellar returns would do well to study what Sleep and Zakaria figured out about where to focus their attention—and, equally important, what they ignored. Sleep cites a line from the philosopher William James: “The art of being wise is the art of knowing what to overlook.” He and Zakaria rejected a slew of standard practices. “We were just getting rid of all the things we didn’t like,” says Sleep.
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482834Like Sleep and Zakaria, Russo has built his entire career on an appreciation of the power of deferred rewards. All of the businesses he owns share one trait, which he describes as “the capacity to suffer.” That’s to say, they invest for “the very long haul,” even when this expense requires them to stomach years of painful upfront losses. As Russo remarks, we tend to benefit whenever we “sacrifice something today” to “gain something tomorrow.”
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492844In the book of Genesis, Esau—a sucker for instant gratification—trades his precious birthright to his brother, Jacob, in return for a worthless bowl of lentil soup. By contrast, Jacob’s son, Joseph—a master of deferred gratification—has the foresight to set aside vast quantities of grain during the “seven years of abundance,” ensuring that Egypt survives the “seven years of famine” that follow. Thousands of years later, we’re presented over and over with this same choice between the present and the future, the instant and the deferred.
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X502852In his landmark book Kabbalah for the Layman, Rav Berg writes, “Instead of choosing the line of least resistance, the quick fix, instant gratification, the kabbalist chooses the line of most resistance.” It’s a profoundly important truth about the counterintuitive path to contentment.
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512863I think that people underestimate—until they get older—they underestimate just how important habits are, and how difficult they are to change when you’re forty-five or fifty, and how important it is that you form the right ones when you’re young. —Warren Buffett
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522909All of this points to an important conclusion that applies both to investing and life. Resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time. “If you want the secret to great success, it’s just to make each day a little bit better than the day before,” says Gayner.
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532935“It’s been my experience that the richest people were those who found something good and held on to it. The people who seemed the least happy and the most frenzied and the least successful are those that are always chasing the next hot thing.”
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542942This emphasis on disaster avoidance reminds me of a marvelous insight from Jeffrey Gundlach, who oversees about $140 billion as the CEO of DoubleLine Capital. Gundlach, a brash and brilliant billionaire known as the King of Bonds, says he’s wrong about 30 percent of the time. So he asks one critical question before making any investment: “If I assume that I’m wrong on this, what’s the consequence going to be?” He then tries to structure his bet so the outcome won’t be ruinous, whatever happens.
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552945“Make your mistakes nonfatal,” Gundlach tells me. “It’s so fundamental to longevity. And ultimately, that’s what success is in this business: longevity.”
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X562959“If you can continue to satisfy and be reasonable, there’s all kinds of people that are going to fall away along the path, and it’s amazing how high up in the percentile rankings you’ll become,” says Gayner. “I was never the number one at anything. I’ve always just been steady and competent and able. But as my father said, the best ability is dependability.III So to do it over and over and over and over again, it keeps you in the game. And it’s amazing how you do sort of become number-oneish over time, just because the competitive field thins out so much.”
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572977Aristotle, the ancient Greek philosopher, argued some twenty-four hundred years ago that excellence and lasting happiness depend on our ability to seek out the “golden mean”—an “intermediate” position that is “equidistant from each of the extremes.” When it comes to physical pleasures such as food, wine, and sex, he taught that we should stake out a middle ground between overindulgence and abstinence. Similarly, in the face of risk, he recommended steering a judicious course between the opposing extremes of timidity and recklessness: “For the man who flies from and fears everything and does not stand his ground against anything becomes a coward, and the man who fears nothing at all but goes to meet every danger becomes rash.”
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582997When I ask him what regular investors should do to get rich, he offers the least exotic advice imaginable: “Live on less than you make. Invest the difference at a positive rate of return. You cannot fail if you accomplish those two tasks.” He adds, “If you’re living on less than your means, you’re rich right now.”
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X593028If your goal is sustainable success, Gayner is convinced that it works better to behave admirably, not least because more people want to do business with you if you’re trustworthy. “Sometimes people build great careers and enjoy great successes for a period of time through bluster and bullying and intimidation and slipperiness,” he says. “But that always comes unraveled. Always. Sometimes it takes a while, but it does. The people you find that just keep being successful year after year after year after year, I think you find those are people of deep integrity.”
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603145Lountzis is a warm and exuberant man who speaks effusively of his four adult children and his wife, Kelly, who has stayed by his side for almost forty years. But his life is built almost entirely around his compulsive craving for any knowledge that could make him a better investor. “I try to read four, five, six, seven hours a day, seven days a week,” he says. “I have no hobbies. I have never golfed in my life.… It’s just my personality—always trying to get smarter, to learn.” He regards social functions as a bothersome distraction: “I love people. But if I’m not learning and growing and being stimulated intellectually, I’d rather be elsewhere.”
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613183Laura Geritz is an equally formidable learning machine. But she has built a different type of informational advantage. While Lountzis invests primarily in the United States, Geritz is one of America’s foremost investors in foreign markets. In a typical year, she spends six to nine months roaming around the world in search of the best investments. At the age of forty-eight, she’s already traveled to seventy-five countries. Geritz, who is the CEO and chief investment officer of Rondure Global Advisors in Salt Lake City, Utah, feels a profound sense of duty to shareholders in her two mutual funds. But she’s not that interested in piling up money for herself. She remarks, “I have enough.” Above all, she’s an intellectual adventurer, propelled by “the passion to learn.”
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623223Geritz’s willingness to travel extensively gives her a cumulative advantage over more parochial investors. “The more you go out into the world, the more you see the patterns,” she says, including cycles of boom and bust that recur in different countries as credit expands or contracts and optimism rises or falls. This pattern recognition helps in “avoiding the massive blowups you can get in emerging and frontier markets.”
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633236Geritz and her team at Rondure meet every couple of weeks to discuss a book that they’ve been reading as a group: “The last book we read was Investing the Templeton Way, which I’ve read many times. But it might also be something like Grit or The Creative Brain.” For the past thirteen years, she has also chosen one major subject (sometimes two) that she studies in depth throughout the year. These topics, which she selects with joyous anticipation, have included Africa, the Middle East, physics, oil, and “the literature and history of Russia.”
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X643263Most of us yearn to live in a place where we feel a sense of belonging and inclusion. But her natural state is to be “a complete and total outsider.” For investors, she says, “one of the critical components is just to be able to observe, and that’s all you can really do in Japan: be an observer. Because you’ll never get embedded enough in society to be fully accepted as part of it.”
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653303In World Without Mind: The Existential Threat of Big Tech, Franklin Foer warns, “We’re being dinged, notified, and clickbaited, which interrupts any sort of possibility for contemplation. To me, the destruction of contemplation is the existential threat to our humanity.”
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X663348It 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. —Charlie Munger
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673523“If people can’t tell you how they do it” and “you can’t understand what they do,” says Martin, “that’s probably not the best spot to be in.” His “golden rule for risk management” is simple: “Know what you own.” As Martin sees it, the best defense against disaster is to “understand the core principles” of investing and then have the “basic discipline” never to violate these “financial laws of gravity.” The most essential law is always to maintain a margin of safety, which stems from buying assets for less than they are worth.
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683681Another psychologically astute strategy is to perform a “premortem” before making any significant investment decision. That’s to say, you project into the future and ask yourself a hypothetical question: “Why did this decision prove to be such a disaster?” The notion of a premortem was devised by an applied psychologist, Gary Klein, to identify problems in advance and reduce the risk of overconfidence. For investors, it’s a valuable safeguard because it forces us to dwell on unfavorable facts and latent threats as a formal step in the decision-making process.
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693732The scientific literature shows that hunger, anger, loneliness, tiredness, pain, and stress are common “preconditions for poor decision making.” So Shubin Stein uses an acronym, HALT-PS, as a reminder to pause when those factors might be impairing his judgment and postpone important decisions until he’s in a state in which his brain is more likely to function well.IV This is our seventh technique for reducing avoidable stupidity.
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703740“There are four things that we know improve brain health and brain function,” says Shubin Stein. “Meditation, exercise, sleep, and nutrition.”
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713790Asked for career advice, he opines: “You have to play in a game where you’ve got some unusual talents. If you’re five foot one, you don’t want to play basketball against some guy who’s eight foot three. It’s just too hard. So you’ve got to figure out a game where you have an advantage, and it has to be something that you’re deeply interested in.”
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723829When I ask Munger what we can learn from him and Buffett about how to lead happy lives, he talks about the quality of their relationships and the joy of partnering with decent, trustworthy people: “Warren has been a marvelous partner for me. I’ve been a good partner for him.… If you want to have a good partner, be a good partner. It’s a very simple system, and it’s worked very well.” The same principle applies to marriage, too: “If you want a good spouse, deserve one.”
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X733836“The idea that life is a series of adversities and each one is an opportunity to behave well instead of badly is a very, very good idea,” says Munger. “I think you take the hardships as they come. You take the blessings as they come. Have fun out of figuring out the puzzles as best you can.”
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743880We need to be acutely aware of what we’re willing and unwilling to sacrifice for the sake of money. This might include rich relationships with our family and friends; talents and ambitions that we neglect at the expense of our fulfillment; the time to relish experiences that don’t advance us in a material way; or values that it’s tempting (and often profitable) to violate. When I ask Thorp if he has any regrets about the choices he’s made in his life, he says, “I don’t regret any of the principled choices I made.” It’s a reminder that one aspect of a successful and abundant life is the self-respect that comes from trying consistently (despite all of our flaws and failings) to behave decently and avoid harming others.
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753930As John Milton wrote in Paradise Lost, which he dictated after going blind, “The mind is its own place, and in itself can make a heaven of Hell, a hell of Heaven.”
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763935Mohnish Pabrai remarks that all of the best investors share one indispensable trait: “the ability to take pain.”
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773949Growing up in the 1980s, Karp had played video games so obsessively that it bordered on being “totally unhealthy.” But he now regarded that misspent youth as a “very formative and helpful” preparation for his investment career. “One of the nice things about video games as a metaphor is that you die all the time,” he explained. “You play, you play, you play, you die. You play, you play, you die.” It’s a harmless way of learning “to accept constant loss and defeat over and over again. And it doesn’t bother you. You just keep doing it. And that’s what investing is.”
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783958He remarked that scientists have been known to “induce insanity” in animals during laboratory experiments by enticing them to pull a lever repeatedly and responding randomly, either with a treat or an electric shock. As an active trader in a violently volatile and irrational market, he had come to identify with those unfortunate creatures.
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793999Marcus Aurelius considered it futile to fret or complain about anything beyond his control. He focused instead on mastering his own thoughts and behaving virtuously so he would meet his moral obligations. “Disturbance comes only from within—from our own perceptions,” he argued. “Choose not to be harmed—and you won’t feel harmed. Don’t feel harmed—and you haven’t been. It can ruin your life only if it ruins your character. Otherwise it cannot harm you.”
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804026Miller also reread Thoughts of a Philosophical Fighter Pilot, which recounts Vice Admiral Jim Stockdale’s experiences as a prisoner of war after he was shot down over Vietnam in 1965. As he ejected from his burning plane and parachuted into enemy territory, Stockdale whispered to himself, “I’m leaving the world of technology and entering the world of Epictetus.” He spent the next seven and a half years in captivity, including four years in solitary confinement and two years in leg chains. He was tortured fifteen times.
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X814073There’s an old saying, sometimes attributed to Philo of Alexandria: “Be kind, for everyone you meet is fighting a hard battle.”
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X824152For years, he had struggled to understand why that teenage girl in Amsterdam had saved him. How could she have been “willing to sacrifice her life” for “somebody she didn’t even know?” And how could her parents have allowed her to embark on such a “suicide mission?” Van Den Berg’s psychiatrist told him, “It’s simple. If your life is more important than your principles, you sacrifice your principles. If your principles are more important than your life, you sacrifice your life.”
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X834172“By your own thoughts you make or mar your life, your world, your universe,” Allen preached. “As you build within by the power of thought, so will your outward life and circumstances shape themselves accordingly.… The soul that is impure, sordid, and selfish is gravitating with unerring precision toward misfortune and catastrophe; the soul that is pure, unselfish, and noble is gravitating with equal precision toward happiness and prosperity.”
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844245Look at the people whose lives I’ve changed.’ ” Van Den Berg points to his trove of letters and says, “That’s my bank account.”
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