I never get tired of Munger. Not always politically correct but a wealth of knowledge if we pay attention. If I read this list to start every day I'd make a lot fewer investing mistakes. I guarantee it.
Spend each day trying to be a little wiser than you were when you woke up.
In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero.
Choose clients as you would friends.
The best armour of 0ld age is a well-spent life preceding it.
When you borrow a man’s car, always return it with a tank of gas.
If only I had the influence with my wife and children that I have in some other quarters!
Take a simple idea and take it seriously.
In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables — like the discount warehouses of Costco.
Don’t do cocaine. Don’t race trains. And avoid AIDS situations.
We look for a horse with one chance in two of winning and which pays you three to one.
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.
It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.
A great business at a fair price is superior to a fair business at a great price.
All intelligent investing is value investing — acquiring more than you are paying for.
You must value the business in order to value you the stock.
No wise pilot, no matter how great his talent and experience, fails to use his checklist.
There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.
…it never ceases to amaze me to see how much territory can be grasped if one merely masters and consistently uses all the obvious and easily learned principles.
Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying eighteen percent.
If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.
Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.
You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.
Three rules for a career: 1) Don’t sell anything you wouldn’t buy yourself; 2) Don’t work for anyone you don’t respect and admire; and 3) Work only with people you enjoy.
I won’t bet $100 against house odds between now and the grave.
I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.
…being an effective teacher is a high calling.
I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…
Without numerical fluency, in the part of life most of us inhibit, you are like a one-legged man in an ass-kicking contest.
In my life there are not that many questions I can’t properly deal with using my $40 adding machine and dog-eared compound interest table
Thursday, January 20, 2011
Charlie Munger: "The Accountants Utterly Failed Us"
A recent build up of articles on GuruFocus.com has convinced me to re-read and re-listen to anything I can find in the library or on the internet that focuses on the man whom I personally consider my role model, Charlie Munger (vice chairman of Berkshire Hathaway). As most know, Charlie is not one to hold back from letting his opinion be known (a good counterbalance to the Dale Carnegie-like demeanor of his partner, Warren Buffett). During a two hour interview with CNBC anchor Becky Quick, which took place at the University of Michigan in September 2010 (see link below for video), Charlie had some interesting thoughts and revelations from his own personal experience about both life and business for the next generation of college graduates soon to enter the workforce.
One issue that Charlie discussed was the importance (or lack thereof) that accountants (“the adults” as he calls them) played during the recent crisis. Not one to disappoint, Charlie was blunt and critical of the role they played: “The accountants utterly failed us; and by the way, there is practically no sign of any intelligent reversal of the failure of that profession.”
Charlie, as a rational and intelligent person and businessman, understands the importance of incentives (“Never, ever, think about something else when you should be thinking about the power of incentives.”), and the perverse effects that they can have when not properly aligned. As he notes in the speech when talking about the ridiculous premise of mark-to-market accounting used by Enron, the people who were going to the SEC (which is led by accountants) and suggesting these accounting rules were the same people who were going to be purposely misusing and looking to profit from these rules. “How could anybody have any respectable understanding of human nature without realizing that the kind of people who were going to be tempted by that accounting were not going to be able to resist the temptations? It was disgusting. And they’re [the accountants] not ashamed yet.”
When asked how this can happen, Charlie reverts back to a basic premise in the understanding of human nature: “Partly, the establishment accountants want to please the people who are writing the checks, and partly the academic accountants get full of people who overdosed on mathematics. And they want everything to be in balance, and they don’t think ‘that really isn’t rational when creating rules for a human behavioral system’. They’re too mathematical and not rational enough when dealing with their fellow humans. You cannot give the average Wall Street CEO really lenient standards of accounting and expect the figures to be good. The accountant is like the referee in soccer… they have to be the adults that prevent the mayhem. They don’t want to be the adults… but it is their duty under god and they failed us miserably.”
As Becky Quick is quick (no pun intended) to note, where does the Wall Street CEO fall into this equation? Are they inherently bad people who won’t follow the rules unless someone is there to put them in their place? Charlie’s response highlights the typical qualities of a CEO: very competitive and aggressive at accomplishing what they want to do. “They can’t help themselves, they’re that competitive”, as Charlie puts it. The blind recreation by leaders of what the CEO in the building next door is doing has been thoroughly discussed by Warren Buffett. He calls this the institutional imperative (first discussed in the 1989 annual report), the drive to follow the path of the other guy, regardless of the potential consequences of that subsequent action. Unfortunately, little has changed in regards to this habit by CEO’s over the past 20+ years.
However, this is not a justification for their behavior. As Charlie notes, he does not think is a productive quality to have: “I don’t believe in being that competitive”. Regardless of his personal thoughts on CEO’s, he retorts back to his original viewpoint: “You can’t blame the miscreants as much as you can the adults whose duty it was to prevent the miscreancy… You can’t blame the tiger for behaving like a tiger; you have to have a gamekeeper.”
I personally agree with Charlie, but think that the “tiger” is let off to easily in these situations. Unfortunately, the “gamekeeper” is often trailing the accounting gimmicks, and is left playing a game of catch up with Wall Street firms “creativity”. The blame for this can easily be placed on the accounting police, but completely avoids a fundamental flaw in the equation: the incentive for firms to continue with accounting gimmicks. As far as I am concerned, accounting fraud needs to become a much bigger issue, and be appropriate punished based on the corporate malfeasance being committed. David Einhorn, the President of Greenlight Capital, highlighted this during a recent interview with Charlie Rose. “After Enron you had Sarbanes-Oxley, and there have been hardly any prosecutions under it. You put in a tough anti-fraud law. The CEO has to sign there is no fraud. The CFO has to sign that the financial statements are correct. If not, there are going to be criminal consequences....But then they didn't enforce it. Once the bad guys figured out that the law wasn't being enforced, it effectively provided cover, because everybody said, ‘Look, we have the tough anti-fraud law. The fraud must have gone away’.”
In my opinion, this is the key issue. Accounting standards certainly need to be set to prevent accounting tricks on financial statements (to the extent this is possible). Beyond that, executives need to be given a serious disincentive for lying and cheating, which I believe starts with stronger criminal consequences for white collar business crime. Until that time, there is no reason to believe that executives will stop pulling any strings necessary to report phony earnings increases which keep investors happy and lead to larger bonus checks at the end of the year.
Link to video: _http://rossmedia.bus.umich.edu/rossmedia/SilverlightPlayer/Default.aspx?peid=4d215177cbe44b1e8e94d0dd68f5058f
One issue that Charlie discussed was the importance (or lack thereof) that accountants (“the adults” as he calls them) played during the recent crisis. Not one to disappoint, Charlie was blunt and critical of the role they played: “The accountants utterly failed us; and by the way, there is practically no sign of any intelligent reversal of the failure of that profession.”
Charlie, as a rational and intelligent person and businessman, understands the importance of incentives (“Never, ever, think about something else when you should be thinking about the power of incentives.”), and the perverse effects that they can have when not properly aligned. As he notes in the speech when talking about the ridiculous premise of mark-to-market accounting used by Enron, the people who were going to the SEC (which is led by accountants) and suggesting these accounting rules were the same people who were going to be purposely misusing and looking to profit from these rules. “How could anybody have any respectable understanding of human nature without realizing that the kind of people who were going to be tempted by that accounting were not going to be able to resist the temptations? It was disgusting. And they’re [the accountants] not ashamed yet.”
When asked how this can happen, Charlie reverts back to a basic premise in the understanding of human nature: “Partly, the establishment accountants want to please the people who are writing the checks, and partly the academic accountants get full of people who overdosed on mathematics. And they want everything to be in balance, and they don’t think ‘that really isn’t rational when creating rules for a human behavioral system’. They’re too mathematical and not rational enough when dealing with their fellow humans. You cannot give the average Wall Street CEO really lenient standards of accounting and expect the figures to be good. The accountant is like the referee in soccer… they have to be the adults that prevent the mayhem. They don’t want to be the adults… but it is their duty under god and they failed us miserably.”
As Becky Quick is quick (no pun intended) to note, where does the Wall Street CEO fall into this equation? Are they inherently bad people who won’t follow the rules unless someone is there to put them in their place? Charlie’s response highlights the typical qualities of a CEO: very competitive and aggressive at accomplishing what they want to do. “They can’t help themselves, they’re that competitive”, as Charlie puts it. The blind recreation by leaders of what the CEO in the building next door is doing has been thoroughly discussed by Warren Buffett. He calls this the institutional imperative (first discussed in the 1989 annual report), the drive to follow the path of the other guy, regardless of the potential consequences of that subsequent action. Unfortunately, little has changed in regards to this habit by CEO’s over the past 20+ years.
However, this is not a justification for their behavior. As Charlie notes, he does not think is a productive quality to have: “I don’t believe in being that competitive”. Regardless of his personal thoughts on CEO’s, he retorts back to his original viewpoint: “You can’t blame the miscreants as much as you can the adults whose duty it was to prevent the miscreancy… You can’t blame the tiger for behaving like a tiger; you have to have a gamekeeper.”
I personally agree with Charlie, but think that the “tiger” is let off to easily in these situations. Unfortunately, the “gamekeeper” is often trailing the accounting gimmicks, and is left playing a game of catch up with Wall Street firms “creativity”. The blame for this can easily be placed on the accounting police, but completely avoids a fundamental flaw in the equation: the incentive for firms to continue with accounting gimmicks. As far as I am concerned, accounting fraud needs to become a much bigger issue, and be appropriate punished based on the corporate malfeasance being committed. David Einhorn, the President of Greenlight Capital, highlighted this during a recent interview with Charlie Rose. “After Enron you had Sarbanes-Oxley, and there have been hardly any prosecutions under it. You put in a tough anti-fraud law. The CEO has to sign there is no fraud. The CFO has to sign that the financial statements are correct. If not, there are going to be criminal consequences....But then they didn't enforce it. Once the bad guys figured out that the law wasn't being enforced, it effectively provided cover, because everybody said, ‘Look, we have the tough anti-fraud law. The fraud must have gone away’.”
In my opinion, this is the key issue. Accounting standards certainly need to be set to prevent accounting tricks on financial statements (to the extent this is possible). Beyond that, executives need to be given a serious disincentive for lying and cheating, which I believe starts with stronger criminal consequences for white collar business crime. Until that time, there is no reason to believe that executives will stop pulling any strings necessary to report phony earnings increases which keep investors happy and lead to larger bonus checks at the end of the year.
Link to video: _http://rossmedia.bus.umich.edu/rossmedia/SilverlightPlayer/Default.aspx?peid=4d215177cbe44b1e8e94d0dd68f5058f
Monday, December 6, 2010
Buffett Loses to Desmarais as Power Exceeds Return
July 30 (Bloomberg) -- Deep among the pine forests of rural Quebec lies a private estate the size of Manhattan, a refuge where French President Nicolas Sarkozy has gone to relax.
Former U.S. Presidents George H.W. Bush and Bill Clinton have played golf here, on 18 meticulously groomed holes with a bright-yellow cottage for respite at the 13th tee. Pheasant shoots are orchestrated from the hunting lodge; opera is performed in the music pavilion. An original of Auguste Rodin’s The Thinker and a statue of Thomas Jefferson adorn the rough, granite hills.
At the heart of the property is a grand residence surrounded by formal gardens called Cherlieu -- which means beloved place -- that’s modeled on a 16th-century Palladian villa. This is the home of Paul Desmarais Sr., a white-haired, Canadian billionaire whose obscurity outside Quebec masks his family’s vast connections and influence in global business and politics.
“They keep a very low profile,” says Brian Mulroney, who met Desmarais in 1965 and, as Canada’s prime minister from 1984 to 1993, introduced him to President Ronald Reagan and Bush. “That’s the way they like it.”
link
Former U.S. Presidents George H.W. Bush and Bill Clinton have played golf here, on 18 meticulously groomed holes with a bright-yellow cottage for respite at the 13th tee. Pheasant shoots are orchestrated from the hunting lodge; opera is performed in the music pavilion. An original of Auguste Rodin’s The Thinker and a statue of Thomas Jefferson adorn the rough, granite hills.
At the heart of the property is a grand residence surrounded by formal gardens called Cherlieu -- which means beloved place -- that’s modeled on a 16th-century Palladian villa. This is the home of Paul Desmarais Sr., a white-haired, Canadian billionaire whose obscurity outside Quebec masks his family’s vast connections and influence in global business and politics.
“They keep a very low profile,” says Brian Mulroney, who met Desmarais in 1965 and, as Canada’s prime minister from 1984 to 1993, introduced him to President Ronald Reagan and Bush. “That’s the way they like it.”
link
Friday, December 3, 2010
Interview With Precious Metal Guru Eric Sprott - Still has 90% of Personal Money in Precious Metals
follow the observations of Sprott Asset Management and also own shares of Sprott Resource Corp which I have written about here:
http://valueinvestorcanada.blogspot.com/search/label/Sprott%20Resource%20Corp
It is hard not to pay attention to Sprott whose hedge fund is up 23% annualized over the last decade, much of that owing to an early call on both gold and the financial problems in the United States.
On the Sprott website is a recent interview where Eric Sprott suggests that silver is now the investment of choice. I'm more of an oil man myself, but I don't think it is ever a mistake to at least listen to the opinions of someone who has either been very good or very lucky for an extended period of time.
http://valueinvestorcanada.blogspot.com/search/label/Sprott%20Resource%20Corp
It is hard not to pay attention to Sprott whose hedge fund is up 23% annualized over the last decade, much of that owing to an early call on both gold and the financial problems in the United States.
On the Sprott website is a recent interview where Eric Sprott suggests that silver is now the investment of choice. I'm more of an oil man myself, but I don't think it is ever a mistake to at least listen to the opinions of someone who has either been very good or very lucky for an extended period of time.
Warren Buffett In His Own Words: 23 Timeless Quotes on Investing
Warren Buffett is the most successful investor of our time, perhaps of any time. He is famous for his pithy and witty quotes, which often appear in his annual letter to shareholders.
When strung together, his quotes pretty well sum up his investment philosophy and approach.
Here are my picks for his best sound bites of all time on being a sensible investor. I would invite readers to use the comments feature to offer their favorite Buffett quotes.
When strung together, his quotes pretty well sum up his investment philosophy and approach.
Here are my picks for his best sound bites of all time on being a sensible investor. I would invite readers to use the comments feature to offer their favorite Buffett quotes.
- Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- Investing is laying out money now to get more money back in the future.
- Never invest in a business you cannot understand.
- I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
- I put heavy weight on certainty. It's not risky to buy securities at a fraction of what they're worth.
- If a business does well, the stock eventually follows.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Time is the friend of the wonderful company, the enemy of the mediocre.
- For some reason people take their cues from price action rather than from values. Price is what you pay. Value is what you get.
- In the short run, the market is a voting machine. In the long run, it's a weighing machine.
- The most common cause of low prices is pessimism. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces. It's optimism that is the enemy of the rational buyer. None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling.
- Risk comes from not knowing what you're doing.
- It is better to be approximately right than precisely wrong.
- All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.
- Wide diversification is only required when investors do not understand what they are doing.
- You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.
- What we learn from history is that people don’t learn from history.
- You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
- You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.
- You should invest in a business that even a fool can run, because someday a fool will.
- When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
- The best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.
- Diversification may preserve wealth, but concentration builds wealth.
Fed Policies Work; EU Should Follow Germany: Greenspan
Current monetary policy has worked because it has helped lift stock prices which in turn have fueled the economic recovery, former Federal Reserve Chairman Alan Greenspan told CNBC on Friday.
Link
Wednesday, December 1, 2010
CNBC Takes You on A Trip Through China with Buffett and Gates
CNBC takes you on a trip through China with two billionaires. The trip happened in September of 2010.
Billionaire buddies Warren Buffett and Bill Gates travel through China.
Link
Billionaire buddies Warren Buffett and Bill Gates travel through China.
Link
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