Quote from Charlie Munger

Charlie Munger is an investment manager and philanthropist. He is Vice-Chairman of Berkshire Hathaway Corporation. Buffett of course describes him as his business partner.

He was recently interviewed at the University of Michigan. The nearly 2-hour video is both informative yet less hopeful on how things will play out in the U.S. and globally.

Full Video here.

Moving to a key quote from Munger, based on advice given from his grandfather:

Assume that the real-life opportunities you get in life are few, and when you get a "lollapalooza", for God's sake don't hang on to it like a timid little rabbit. Don't hang back. There aren't that many of the real good big ones.

To support this great idea, Munger refers to Berkshire's "lousy" performance. Berkshire had "just" 20 great investment ideas over a 40 year period, which worked out to one great idea every 2 years.

Warren Buffett & Jay-Z on Success

Warren Buffett and Jay-Z were interviewed on Forbes on the discussion of success. The contents is much like a 'mash-up' of ideas between finance and rap music in which the commonalities between the two breeding success is answered.

Disclosure: 'Empire State of Mind' was played full volume as these notes were compiled.

Much of what Buffett said was already posted on this blog. Nevertheless, the key points are posted below. My emphasis is in bold.

• Buffett had a 15 year jump ahead of others
• Need emotional stability
• Need to think independently, think on own facts and act on it – few are able to do this
• Stay within your circle of competence 
• It’s like tennis: few of us will get to play in Wimbledon, but in tennis, get ball over the net and you will be fine
• Investing is not about not having brilliant decisions, it is about avoiding the bad ones (it’s like baseball: hit singles and doubles)
• Read Benjamin Graham’s book (The Intelligent Investor) at 19, started at 7 and read all he could in stocks by age 12
• Buffett was never grounded to anything and but was never profitable – it was not until after reading Graham’s Intelligent Investor did he start to succeed
• The two key ideas?
1. Think of stock as part of a business, not as a stock price or ticker
2. Margin of Safety

Jay-Z

• How did he break out of the pack of the other rappers?
• Within all that chaos you are searching for the truth – his first album at 26, so had more maturity
• What did he do when faced with fork-in-the-road moments? ...
• Consistency: he did not fade away. Music is like stocks. Instead of jumping on that next hot thing, he had discipline and confidence in who he was
• He treated music as a business
• The greatest trick in music that people ever pulled was they convinced artists they can’t be an artists who can make money. It was set-up!
• Hip hop broke that thing. At end of day, you need to separate music from the business. For example, it has to be about making music in the studio
• Genius approach was about not giving up, created own buzz, and music recording company came back to them

About Luck

• Buffett was born 1930 in US, odds 30:1 he would succeed. He had decent genes, but was wired for capital allocation
• Buffett was turned down by Harvard which gave opportunity to study under Ben Graham

Business Models

• Everything you do is cumulative: what was learned by Buffett at 20 is still useful now
• Principles do not change – it is much like physics – know what makes a good manager, product – there is transference
• Knowing what to leave out is as important: how do you beat Bobby Fisher, the great chess player? Play him in anything else besides chess
• Napster was an opportunity to embrace: shutting it down and having arrogance resulted in million more “napsters”
• Would have been better to have opened yourself up to change. Landscape changes, the way you go about business needs to change. You don’t necessarily need to change yourself

Business Moats

• Buffett likes having a business that has moats, where competitors cannot get to you
• The best moat to have is your own talent: taxes, inflation can’t take that away from you
• When Buffett talks to student he asks if you’re a $1 million asset he’d pay 10% ($100,000), how do you make yourself worth 50% more?
• Answer: Improve yourself, (ie) learn to communicate better might increase your worth 50% which equates to $500,000
• Develop habits of success – look around you and list talents of others and follow

Making Mistakes

• Discuss what went wrong, face up to it
• Have ability to discuss an opposing position comfortably
• Learn why and how poor decisions were made
• Don’t expect perfection in yourself – it is too demanding to do so

Final Thoughts on Success

• Buffett: Almost everyone who was successful had a teacher that has affected him – if you can pass that along, that is better than passing along money

• Jay-Z: Apply yourself, stay true to who you are, how far where you come from. Hope.

Conclusion:  Take control of your destiny by learning about business, so you won’t lose what you’ve created

Video Link: http://video.forbes.com/fvn/forbes400-10/jay-z-buffett-forbes-success-giving

h/t Marketfolly

The Thing about Margin of Safety...

The risk that a security will decline is quantified using a margin of safety. Howard Marks comments on the downside to using a margin of safety in the Sep/Oct edition of CFA Magazine. Marks is Chairman of Oaktree Capital, a firm that manages over $75B in assets. He talks about margin of error (my emphasis in bold):

I’m a worrier. I always ask myself whether I’m being too cautious. I believe strongly that
girding for bad times, and thereby ensuring margin for error, is more essential than preparing for good times. If you prepare for and count on good times, their failure to materialize can knock you out.

There’s a downside to this, however. Having a margin for safety in your portfolio means you can’t always maximize returns. The people who are sure what’s going to
happen and turn out to be right—due to skill or luck— are the ones who’ll maximize. Those who aren’t sure what is going to happen and build in a margin of safety are unlikely to maximize under any single scenario. As investors, we all have to choose whether we’re going to play mostly offense or mostly defense.

As investors, we all have to choose whether we’re going to play mostly offense or mostly defense.

The last several decades were marked by increasingly aggressive behavior, what I call “willingness.” Then there was the trend toward levering up in order to do more than one’s capital permits, or “expansiveness.”  Finally, we all observed the bullishness that produced rising asset prices.

These three trends reached a peak in 2007, and it’s easily summed up in what I find to be the greatest investment adage: “What the wise man does in the beginning, the fool does in the end.” I’m not saying leverage is a mistake, but it’s a mistake when it’s carried too far. There’s nothing in the investment business—no asset class, no single investment, no strategy—that’s a good idea or a bad idea. Everything is a good idea or a bad idea at a particular price and at a particular time. It’s when people forget this that they get into trouble.

Introducing the iPhone 5

h/t mobilesyrup

Free MBA Lessons from Warren Buffet: Pt. 10

Skipping ahead for the moment, in the lecture series with Warren Buffett, Buffett gives much insight for investors in navigating through the noise in finance.

The bottom line is that Buffett evaluates an investment as a business, and cares little about daily changes in its stock price:

I have no idea where the market is going to go...the market knows nothing about my feelings.


The stock doesn't care what you pay, it doesn't care that you own it. Any feeling you have in the markets are not reciprocated. It's a very cold shoulder.

Needless to say, Buffett gets more interested the lower prices on stocks go. Better buys are made when stock prices fall.



Finally, Buffett provides insight on how he thinks his life would have played out if he were born at a different time, and with a different set of opportunities:

If I'm lucky, then the way to do it is to play out that game and do something you enjoy throughout your life with people you like. If I could make $100M dollars by buying a business from some guy that made my stomach churn then I'd say no, because that's like marrying for money...which isn't a good idea under any circumstances but if you're already rich then it's crazy.