A letter a day!
Letter #76 2022
- When large enterprises are being managed, both trust and rules are essential. Berkshire emphasizes the former to an unusual some would say extreme degree.
“Disappointments are inevitable. We are understanding about business mistakes; our tolerance for personal misconduct is zero.”
2.Capitalism has two sides: The system creates an ever-growing pile of losers while concurrently delivering a gusher of improved goods and services. Schumpeter called this phenomenon “creative destruction”.
3.Controlled businesses are a different breed. They sometimes command ridiculously higher prices than justified but are almost never available at bargain valuations.
4.One advantage of publicly traded segment is that it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks.
5.The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.
6.When the share count goes down (Buyback happens), your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose.
- Buffett has written down few of the thoughts of Charlie Munger from one his podcast:
•The world is full of foolish gamblers, and they will not do as well as the patient investor.
• If you don’t see the world the way it is, it’s like judging something through a distorted lens.
• All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary – and then behave accordingly.
• If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results.
• Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage.
• You can learn a lot from dead people. Read of the deceased you admire and detest.
• Don’t bail away in a sinking boat if you can swim to one that is seaworthy.
• A great company keeps working after you are not; a mediocre company won’t do that.
• Warren and I don’t focus on the froth of the market. We seek out good long-term
investments and stubbornly hold them for a long time.
• Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying.
• There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.
• You don’t, however, need to own a lot of things in order to get rich.
• You have to keep learning if you want to become a great investor. When the world changes, you must change.
Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never.
• Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.”
And so it goes. I never have a phone call with Charlie without learning something. And, while he makes me think, he also makes me laugh. I will add to Charlie’s list a rule of my own: Find a very smart high-grade partner preferably slightly older than you and then listen very carefully to what he says.
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