Multi-Disciplinary Reading – Book Reviews

Richer, Wiser, Happier by William Green (2020)

The author interviewed (and spent time with) many investment greats over multiple years which resulted in this book. In the book, the author takes us deep into the psyche of each investor – how their investment styles were shaped by their worldview and their personal philosophy. I particularly enjoyed the chapter on Howard Marks (read it twice over).

Apart from investment mantras the book is full of sublime wisdom which I really enjoyed; for example –

A sense of impermanence can also inspire us to value and nurture our relationships (since we don’t know how long any of us will be here) and to live more fully now. In his book The Science of Enlightenment, Shinzen Young writes of learning to experience the world with “radical fullness” by focusing on every moment with “extraordinary concentration, sensory clarity, and equanimity. You can dramatically extend life—not by multiplying the number of your years, but by expanding the fullness of your moments.”

Here are my notes –

Mohnish Pabrai | The Man Who Cloned Warren Buffett

• There are no prizes for frenetic activity. Rather, investing is mostly a matter of waiting for these rare moments when the odds of making money vastly outweigh the odds of losing it.

• Say No to Almost Everything. Take a simple idea and take it seriously.

• Mohnish’s mantras

• • 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

Sir John Templeton | The Willingness to Be Lonely

• To beat the market, you must be brave enough, independent enough, and strange enough to stray from the crowd

• First of all, beware of emotion: “Most people get led astray by emotions in investing. They get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.”

• Second, beware of your own ignorance, which is “probably an even bigger problem than emotion.… So many people buy
  something with the tiniest amount of information. They don’t really understand what it is that they’re buying.”

• Third, you should diversify broadly to protect yourself from your own fallibility.

• Fourth, successful investing requires patience.

• Fifth, the best way to find bargains is to study whichever assets have performed most dismally in the past five years, then to assess whether the cause of those woes in temporary or permanent.

• Sixth, “One of the most important things as an investor is not to chase fads.”

Howard Marks | Everything Changes

• In a world where nothing is stable or dependable and almost anything can happen, the first rule of the road is to be honest with ourselves about our limitations and vulnerabilities.

• If he wanted to add value as an investor, you should avoid the most efficient markets and focus exclusively on less efficient ones.

• Any asset, however ugly, can be worth buying if the price is low enough. Indeed, Marks believes that “buying cheap” is the single most reliable route to investment riches—and that overpaying is the greatest risk. Thus, the essential question to ask about any potential investment should be “Is it cheap?”

• The future is influenced by an almost infinite number of factors, and so much randomness is involved that it’s impossible to predict future events with any consistency

• When analyzing any asset, what Marks wants to know, above all, is “the amount of optimism that’s in the price.”

• The future may be unpredictable, but this recurring process of boom and bust is remarkably predictable. Once we recognize this underlying pattern, we’re no longer flying blind.

• “You can’t know the future,” says Marks, but “it helps to know the past.”

• One way that Marks gauges the current investment environment is by gathering “vignettes” about “stupid deals” that are getting done. For example, in 2017, Argentina issued a hundred-year bond with an annual yield of 9 percent. It was vastly oversubscribed, even though Argentina had defaulted on its debt eight times in two hundred years, most recently in 2014. It seemed a fine example of what Samuel Johnson called “the triumph of hope over experience.” Sure enough, when I interviewed Marks in 2020, he noted that Argentina had just defaulted for the ninth time.

• As Marks often says, “The environment is what it is.” We can’t demand a more favorable set of market conditions. But we can control our response, turning more defensive or aggressive depending on the climate.

• “Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”

• Never bet the farm against the inexorable forces of change.

• Both in markets and life, the goal isn’t to embrace risk or eschew it, but to bear it intelligently while never forgetting the possibility of an unpleasant outcome.

• Lessions from Howard Marks

• • The importance of admitting that we can’t predict or control the future.
• • The benefits of studying the patterns of the past and using them as a rough guide to what could happen next.
• • The inevitability that cycles will reverse and reckless excess will be punished.
• • The possibility of turning cyclicality to our advantage by behaving countercyclically.
• • The need for humility, skepticism, and prudence in order to achieve long-term financial success in an uncertain world.

Graham, Kahn, Buffett, Eveillard, and McLennan | The Resilient Investor

• First, we need to respect uncertainty

• Second, 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.

• Third, instead of fixating on short-term gains or beating benchmarks, we should place greater emphasis on becoming shock resistant, avoiding ruin, and staying in the game.

• Fourth, beware of overconfidence and complacency.

• Fifth, as informed realists, we should be keenly aware of our exposure to risk and should always require a margin of safety.

Joel Greenblatt | Simplicity Is the Ultimate Sophistication

• “For the simplicity that lies this side of complexity, I would not give a fig, but for the simplicity that lies on the other side of complexity, I would give my life.” (attributed to the US Supreme Court justice Oliver Wendell Holmes)

• We each need a simple and consistent investment strategy that works well over time—one that we understand and believe in strongly enough that we’ll adhere to it faithfully through good times and bad.

• It’s not enough to find a smart strategy that stacks the odds in your favor over the long haul. You also need the discipline and tenacity to apply that strategy consistently, especially when it’s most uncomfortable.

• Lessons from Joel Greenblatt

• • First, you don’t need the optimal strategy. You need a sensible strategy that’s good enough to achieve your financial goals.
• • Second, 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.
• • Third, you need to ask yourself whether you truly have the skills and temperament to beat the market.
• • Fourth, it’s important to remember that you can be a rich and successful investor without attempting to beat the market

Nick Sleep & Qais Zakaria | Richest rewards go to those who resist the lure of instant gratification

• First, there is a compelling case to pursue quality as a guiding principle in business, investing, and life—a moral and intellectual commitment inspired by Zen and the Art of Motorcycle Maintenance

• Second, there is the idea of focusing on whatever has the longest shelf life, while always downplaying the ephemeral. This principle applied not only to the information they weighed most heavily, but also to the long-lasting companies they favored.

• Third, there is the realization that one particular business model—scale economies shared—creates a virtuous cycle that can generate sustainable wealth over long periods

• Fourth, it’s not necessary to behave unethically or unscrupulously to achieve spectacular success, even in a voraciously capitalistic business where self-serving behavior is the norm.

• Fifth, in a world that’s increasingly geared toward short-termism and instant gratification, a tremendous advantage can be gained by those who move consistently in the opposite direction

Charlie Munger | Don’t Be a Fool

• Invest better, think better, and live better by adopting a strategy of systematically reducing standard stupidities

• Munger strives consistently to reduce his capacity for “foolish thinking,” “idiotic behavior,” “unoriginal error,” and “standard stupidities.”

• Safeguard against stupidity: imagine a dreadful outcome; work backward by asking yourself what misguided actions might lead you to that sorry fate; and then scrupulously avoid that self-destructive behavior.

• For a start, he says, “Don’t pay too much. Don’t go for businesses that are prone to obsolescence and destruction. Don’t invest with crooks and idiots. Don’t invest in things you don’t understand.”

• The habit of actively collecting examples of other people’s foolish behavior is an invaluable antidote to idiocy.

• He once told Berkshire’s shareholders, “I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.”

• Nothing matters more than averting obvious errors with the potential for catastrophic consequences.

• Munger particularly admires the unflinching determination to seek out “disconfirming evidence” that might disprove even their most cherished beliefs. The willingness to welcome the discovery of our own errors is an inestimable advantage.