Synopsis – A famed investment manager gives us insight to what he considers “most important” and how it plays a role in his decision making.
Key Takeaways
Page 4 – You must be thinking more right than others…which by definition means your thinking has to be different
What are you doing to differently to others?
Page 5 – The difference in workload between first-level and second-level thinking is clearly massive, and the number of people capable of the latter is tiny compared to the number capable of the former
The work and who can do the work
Page 13 – The first test is always the same “And who doesn’t know that?”
Information is power, especially information that no one else knows
Page 15 – Inefficient markets do not necessarily give their participates generous returns. Rather, its my view that they provide the raw material – mispricing’s – that can allow some people to win and others to lose on the basis of differential skill
To be an inefficient market is not enough, you still have to make the right moves
Page 17 – Many of the best bargains at any point in time are found among the things other investors can’t or won’t do
Balls on the line
Page 17 – Let others believe markets can never be beat. Abstention on the part of those who won’t venture in creates opportunities for those who will
Fortune favours the brave
Page 17 – I should limit my efforts to relatively inefficient markets where hard work and skill would pay off best
Time is limited, focus where you will be most effective
Page 23 – Growth investing represents a bet on company performance that may or may not materialize in the future, while value investing is based primarily on analysis of company’s current worth
The present versus the future
Page 28 – Thus, there are two essential ingredients for profit in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you are wrong. Oh yes theses a third; you have to be right
Trust yourself and hang on
Page 29 – Investment success doesn’t come from “buying good things” but rather from “buying things well”
Overpaying for good things is first level thinking
Page 75 – Controlling the risk in your portfolio is a very important and worthwhile pursuit. The fruits, however, come only in the form of losses that don’t happen. Such what-if calculations are difficult in placid times.
Safety is hard to measure and put a value on
Page 77 – Reality is more vicious than Russian roulette. First it has thousands of chambers so after few dozen tries, we forget, second most people don’t even know they are playing Russian roulette as the games are not well defined
Taleb
Page 99 – Nothing is easier than self-deceit. For what each man wishes that he also believes to be true
Vital lies, simple truths
Page 113 – The most typical of market victims; the six-foot-tall man who drowned crossing the stream that was five feet deep on average
The ends of the bell curve will kill you
Page 128 – To boil it all down to just one sentence, I’d say the necessary condition for the existence of bargains is that perception has to be considerably worse than reality. That means the best opportunities are usually found among things most other won’t do. After all, if everyone feels good about something and is glad to join in, it won’t be bargain-priced
Do things other people are not willing to do
Page 136 – You simply cannot create investment opportunities when they’re not there. The dumbest thing you can do is to insist on perpetuating high returns – and give back your profits in the process. If its not there, hoping won’t make it so
Play the game that is in front of you
Page 166 – A good decision is one that a logical, intelligent, and informed person would have made under the circumstances as they appeared at the time before the outcome as known.
We can’t judge decisions by the outcome
Page 183 – I believe that in many cases, the avoidance of losses and terrible years is more easily achieved than repeated greatness and thus risk control is more likely to create a solid foundation for superior long-term track record. Investing scared, requiring good value and a substantial margin for error, and being conscious of what you don’t know and can’t control are hallmarks of the best investors I know
The avoidance of loss is as important as the gains you make
Page 209 – It’s reasonable to aspire to returns in single digits or low double digits. High teens are something very special and should be the province of experienced pros.
Keep reasonable goals in mind
Page 212 – That leaves buying on the way down, which we should be glad to do. The good news is that if we buy while the price is collapsing, that fact alone often causes others to hide behind excuse that “it’s not our job to catch falling knives
Catch the falling knife
Page 216 – The relationship between price and value holds the ultimate key to investment success. Buying below value is the most dependable route to profit. Paying above value rarely works out as well.
Don’t make mistakes
Page 219 – A diversified portfolio of investments, each of which is unlikely to produce significant loss, is a good start toward investment success.
KISS
Final Thoughts – One of the best investment books I have read. Each concept is laid out, explained with examples. Second level thinking and the discussing on the relationship between price and risk alone is enough. Recommend to anyone who is interested in better ways of thinking. 9/10
Stranger in Sydney 