Richer Wiser Happier - Wisdom of a century ?

Book starts with an overview about the investors and their common and uncommon practices. Some of the names include John Bogle, Peter Lynch, Buffet, Munger, Bill Miller etc . The introduction “Inside the minds of greatest investors” suffice the crux and has good collection of quotes and aphorisms. From Bill Miller’s “It’s all probabilities. There is no certainty.” to Bill Raune’s investing principles from Buffet and Munger’s bridge hypothesis to Thorp’s psychological edge. “There are many ways to win, but they all require some form of edge.” Focus in not only to be richer, but happier and wiser as well and to build a life imbibed with meaning which transcends money.

Ruane in 2001 had 35 percent of Sequoia’s assets riding on a single stock: Berkshire Hathaway. It had fallen out of favor during the dotcom craze, and Buffett, its chairman and CEO, was lambasted for losing his touch. Yet Ruane saw what others missed: a wonderful company with superior growth prospects run by the smartest guy in the country.

Chapter 1 - The man who cloned Warren Buffet

Chapter starts with describing Dakshana, Pabrai's charity organization which focuses on providing education to the needy to get admission in Indian Institute of Technology. Pabrai calls himself a “Shameless cloner” and his style of investing as “cloned one”. Doubling your money matters the most and how quickly you can do so over a period over and over leads to wealth. For master investors such as Buffett and Munger, the essence of the game is to detach themselves from the madness and watch dispassionately until the bipolar market provides them with what Munger calls “a mispriced gamble.” 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.

Pabrai followed the similar approach as he says I buy assets such that “heads I win , tails I don’t lose much”. A few case studies shows how Pabrai picks up stocks which he calls as “no brainers.”

To compress his investing style - "Be patient and selective, saying no to almost everything. Exploit the market’s bipolar mood swings. Buy stocks at a big discount to their underlying value. Stay within your circle of competence. Avoid anything too hard. Make a small number of mispriced bets with minimal downside and significant upside."

From owning an IT firm to investor and philanthropist, meeting Buffet and Munger for lunch to his daily schedule the chapter explains Pabrai’s journey in a warm and lucid manner.

Quotes - “Take a simple idea and take it seriously.”

“On my gravestone, I want them to write, "He loved to play games, especially games he knew he could win." Cloning is a game. Blackjack is a game. Bridge is a game. Dakshana is a game. And, of course, the stock market is a game. It’s just a bunch of games. It’s all about the odds.”

Chapter 2 - The willingness to be lonely

This depicts the story of John Templeton and carries the idea that iconoclasts, mavericks, and misfits who see the world differently from the crowd and follow their own peculiar path—not just in the way they invest but in the way they think and live. How Templeton started investing professionally and what he preached spiritually. From post war bets guided by basic principles to nontribal investor, the chapter serves the journey quite generously. Templeton lays down six principles worth cloning namely beware of emotions, ignorance, diversify broadly, have patience, 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 is temporary or permanent and don’t chase fads( value over outlook).

Templeton’s watchfulness over money also stemmed from his belief that we are merely “temporary stewards” of God’s wealth. He liked to begin meetings at his fund company with a prayer, and he saw a strong connection between spirituality and material success. He disapproved of distractions such as television and movies (especially “unprincipled entertainment”), preferring to read corporate filings or inspirational books. He referred to “goofing off” as “a form of theft” and to idleness as ”a form of slow suicide.” Templeton was no nonsense kind of guy who first mastered himself.

Crux - It highlights the importance of controlling the “inner world” and with remorseless discipline on valuations, on gathering better information than his rivals possessed, on making fearlessly independent judgments with no concern for the tastes of the tribe.

Chapter 3 - Everything Changes!

Getting inspiration from –impermanence, a Buddhist concept, which instates change is inevitable. Howard Marks is an original thinker—a man captivated by subjects such as risk, randomness, cyclicality, the psychology of investing, and the threat of what he calls “improbable disasters.” He went to Wharton and later at Chicago School(gave Efficient Market hypothesis)  to pursue MBA and learned how luck plays a role in investing. From wanting a job in Lehman to working in Citibank and founding Oaktree, the chapter depicts the journey of Marks in minimum but apt words. Marks drew a simple but life-changing lesson from academic debates “ if he wanted to add value as an investor, he should avoid the most efficient markets and focus exclusively on less efficient ones.”. He believed life and markets work in oscillating motion rather than straight line. As Buffet is to Pabrai, Templeton is for Marks. “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. All the investors discussed so far had one thing in common i.e. to avoid major financial crisis and use it as an opportunity. Same was the case with Marks. The chapter throws the light upon some of the investments made by Oaktree post global financial crisis and how over pessimism help investors. All this clubbed make Marks as philosopher king of finance of the present times.

“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.”

John Kenneth Galbraith – “We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know.”

Chapter 4 - The Resilient investor

Eveillard started investing after reading Security analysis and The Intelligent Investor. But things changed post dot com bubble. Like every other wise investor he decided not to buy tech companies at inflated valuations which was wise decision in hindsight but at that moment was very painful, both financially as well as psychologically. 70% of his investors left after 3 years of underperformance from 1997-2000. He was sold off to another team, disdained by his seniors, colleagues and investors but did not give up his wit. Dot com spree got busted, Eveillard’s contrarian way was rewarded by Mr Market. Moreover, the chapter highlights how difficult it is to be a rational fund manager for a long period. Individual investors have one significant advantage: they’re not answerable to trigger-happy shareholders or any other disgruntled critics.

Later half of the chapter covers the story and style of McLennan who runs value oriented fund at GS. How he came up from suburbs of Australia, his passion for reading and “not to lose” kind of thinking and making resilient portfolio.

He started by envisioning the global markets as one giant block of marble. He then begins “chipping away” every piece that he doesn’t want to own, removing whatever promotes fragility, in order to “sculpt a better outcome.” The guiding principle behind this process is one of “error elimination.” McLennan’s way is to buy those businesses that won’t “fade away” and keep holding them. He held highly diversified portfolio and used gold as hedge to reduce the error and offer resilience.

The later half of the chapter discusses the personal aspect of Eveillard and McLennan. Sometimes how absorbing and painful the situation can turn. “What I learned over time is that often it was just the people who didn’t give up, who just kept learning, kept evolving, stuck to it, and were willing to live through adversity.”

“The pricing of risk goes through enormous cycles. You want to be more willing to commit capital to investments when risk is obviously being well priced, such as late 2008 or 2009. And you want to be more cautious when risk is not being as well priced, like 1999 or 2007 or perhaps today.”

"Success stems from consciously resisting everything that promotes fragility."

"The future is so “intrinsically uncertain” that investors should focus heavily on avoiding permanent losses and building “a portfolio that can endure various states of the world.”

“In an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.”

Chapter 5 - Simplicity is the Ultimate Sophistication

This chapter describes Joel Greenblatt – founded Gotham capital, wrote 3 best sellers and returned shareholders money after 836% returns over ten years. His style to pick stocks is simple “Figure out what something is worth and pay a lot less.” The importance of simplicity highlighted by Occam’s Razor, Albert Einstein’s physics, Steve Jobs’s Apple, John Bogle’s index funds, Buffet’s stock selection to Will Danoff’s secret sauce (stocks follow earning),  in their respective problems and use of simplest solution. Staunch advocate of simplicity and Graham’s value investing the chapter highlights his adventure with Host Marriott to shift of paradigm from Graham way to Munger way to buy Moody’s.(wonderful business at fair price)  

“I don’t buy more of the ones I can make the most money on. I buy more of the ones that I can’t lose money on.”

“The laws of economics and gravity will not be repealed.”

"You also need the discipline and tenacity to apply that strategy consistently, especially when it’s most uncomfortable."

Chapter 6 - Nick and Zak's Excellent Adventure 

The chapter starts with quote of Matthew:

Everyone then who hears these words of mine and does them will be like a wise man who built his house on the rock. And the rain fell, and the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on the rock. And everyone who hears these words of mine and does not do them will be like a foolish man who built his house on the sand. And the rain fell, and the floods came, and the winds blew and beat against that house, and it fell, and great was the fall of it.

This chapter starts with life journey of Zak and Nick. Nick, Englishman from Edinburgh, studied geology and later geography aspired to be landscape architect and got into investing. Zak, from Cambridge, graduate in mathematics, aspired to be meteorologist, broken and bankrupt at an early age got into investing. Both Nick and Zak met at Marathon and were given the chance to run there own partnership firm.

How Nick and Zak’s early life experiences (Sell side analyst, working in local brokerage houses etc ) helped them in later half and created a lollapalooza. Their target was a tenfold increase in Nomad’s net asset value.

Their source of inspiration was Warren Buffet clubbed with their own thesis antithesis. Their attitude was influenced by Zen and the Art of Motorcycle Maintenance by doing little things with quality intact. Sleep cites a line from the philosopher William James: “The art of being wise is the art of knowing what to overlook.” Sleep refers dismissively to the “quarterly EPS junkies” who crave this information, which will already be “worthless” in twelve weeks. They retired at age of 45 and returned the funds to partners with 921% returns over the course. Post retirement they manage their own funds and tripled their wealth in next 5 years. The Sleep framework and points were highlighted in earlier blog (https://www.sinewavesecurities.com/2022/02/nick-sleep-letters-seneca-of-wall-street.html, https://www.sinewavesecurities.com/2022/02/nick-sleep-letters-seneca-of-wall_15.html ). The chapter summarizes the stock picks and mental models applied in short manner. Sleep and Zakaria are titans of impulse control. How else could they have held Costco for eighteen years and Amazon for sixteen years while it has soared from $30 to more than $3,000 per share? They understood the fundamental truth that we benefit by deferring gratification and prioritizing long-term outcomes.

On life Nick applied the “destination analysis” and quoted “think that you treated your clients equitably, did your job properly, gave money away properly—not that you had four houses and a jet.” It came naturally for them to think along unconventional lines because they were two odd ducks who had landed in the investment industry by accident—a failed landscape architect and a frustrated meteorologist.

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. Sleep spends much of his time helping OnSide Youth Zones, a charity that creates safe havens where kids in poor areas can socialize and learn new skills. He says the primary focus for him and Zakaria has shifted to “doing the maximum amount of good over the very long term.”

Chapter 7 - High Performance Habits

"I think that people underestimate—until they get older—they underestimate just how important habits are, and how difficult they are to change when you’re forty-five or fifty, and how important it is that you form the right ones when you’re young."

—Warren Buffett

This the story of Tom Gayner, 190 pounds heavy guy who had love for investing. He got into Markel insurance and managed over $21 bn and 17000+ employees. “If you want the secret to great success, it’s just to make each day a little bit better than the day before,”

Major points

-Aggregation of marginal gains with forever holding time horizon philosophy while stock picking

-Profitability and RoCE, talent and integrity, reinvestment dynamic and reasonable price

-moderate sustainable changes  and radically moderate approach towards everything

-owns about 100 stocks, 2/3 in top 20 cos

Comparing himself to some of his cleverest peers, he remarks, “I compensate for the lack of intellect with more discipline and steadiness and persistence.” As the best investors show, sustained excellence requires us to subtract and go deep.

-Example of Vinik and Danoff from Fidelity’s Magellan -All that hard-earned knowledge compounds over time and pays off in unpredictable ways.

- Lountzis, disciplined and extreme level reader-read re read as many times from limited sources, be it 1993 annual report, Common stocks and Uncommon profit, Intelligent investor

“The problem,” says Lountzis, is that qualitative factors such as adaptability or courage “are not measurable” in financial statements, which offer a quantitative record of the past.

His solution is to operate more like an investigative reporter than an accountant.

- Geritz, who travels and explores various countries and opportunities present at reasonable valuations.

Overall all these investors were Self honest, worked on habits and have deep focus(what to do and also what not to do) which lends them to be Richer, Wiser and Happier.

Chapter 8 - Don’t be a Fool

Green writes about what he experienced while meeting Munger and advices which he gave him from markets to marriage. The whole chapter focus on behavioral and psychological aspect of being an investor. What not to do, how not to act stupid and how to not let biases distort our judgments. The chapter not only covers investment but also personal side of Munger.  The boy admired by many – Buffet(best 30second mind) Pabrai & Gates(broadest thinker).

Further in the chapter he adds the Shubin Stein’s take on what not to do and role of emotions. Some insights

-Rather than being smart focus on being non idiot as it is much easier for to follow what not to do. “Invert, always invert.” Is the principle which Charlie uses to deal with any problem.

-Collector of idiocy and talks about Marin and sea adventures. “golden rule for risk management” is simple: “Know what you own.”

 Some quotes :

“Three things ruin people: drugs, liquor, and leverage.”

Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”

­Our emotional disposition and moods routinely distort what we see and how we relate to risk.

“Hunger, anger, loneliness, tiredness, pain, and stress – emotions which hinders rational decision making."

“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.”

Tillinghast’s advice - “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.”

Further the epilogue covers life beyond investing, the path which guides you to be Wiser and Happier.

The book is highly recommended as it collects the mindset and methodology of top investors of the century. Green has compiled wisdom of a century in less than 300 pages.