by David Clark
Overview of the book
Warrent Buffet said "Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices."
"Knowing what you don't know is more useful than being brillant." You should be aware of what you don't know and use this awareness to stay away from investing in businesses you don't understand.
"People are trying to be smart - all I am trying to do is not to be idiotic, but it's harder than most people think."
He cares about not doing something stupid. These are mostly errors of omission, by not acting when he sees a good investment. The game of tennis like this. Most times you don't have to be great or brilliant. Most of the time you just have to get the ball over the net within the squares. Eating and most things in life are like this. You don't need to be smart, you just need to avoid idiotic decisions.
"Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much loved hand -- you must learn to handle mistakes and new facts that change the odds." The example given was Freddie Mac which Berkshire bought in 1980s but sold in 1999 before 2008 and Freddie Mac was in receivership.
"Once we'd gotten over the hurdle of recognizing that a thing could be a bargain on quantitative measures that would have horrified Graham, we started thinking about better businesses." This is where Buffett and Munger moved away from Benjamin Graham's way of investing. Instead of selling when the stock rises, keep the stock, where the business's intrinsic value will increase over time.
"Acknowledging what you don't know is the dawning of wisdom." Charlie called the "Circle of Competence," which consisted of companies is was capable of understanding and valuing. He acknowledged what he didn't know so that he could either avoid the investment or learn more about the business and see if he could understand it to the point that he could value it and add to the circle of competence. As time went on, Charlie increased his circle of competence to include the insurance business, banking, newspapers, television, candy companies, airlines, the toolmaking business, boot makers, underwear manufacturers, power companies, and investment banking. Formula to wisdom: acknowledge what you don't know and do something about it.
"Mimicking the herd invites regression to the mean." The author equates this to index funds but it could be compared to life in general. You do what the herd does you become average.
Blaise Pascal, the seventeenth-century French mathematician, said, "All of humanity's problems stem from a man's inability to sit quietly in a room alone."
"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.'"
Charlie thought repealing of Glass-Steagall in 1999 was an invitation for problems because it allowed commericial banks to function as investment banks.
"When you mix raisins with turds, you still have turds."