Charles Ellis notes:

-the great secret for success in long term investing is to avoid serious losses.

-stock and bond investing should be a defensive process.

-if a major decision is truly fiduciary in nature, it never needs to be done quickly. Time urgent decisions are never fiduciary.

-reduce errors

-if you find yourself getting caught up in the excitement of a rising market or distressed by a falling market, stop! Break it off. Go for a walk and cool down. Otherwise you will become part of the crowd , wanting to do something- and you will make errors, perhaps grave errors that you will regret.

-when you feel euphoric, you're probably in for a bruising. When you feel down, it's darkest just before dawn- abd take no action.

-how your investments behave, is beyond your control. But how you behave in response to their fluctuation is within your control.

-in a losers game, the outcome is determined by mistakes made by the loser.the best way to win is by making fewer bad shots. Keep the ball inside

From :

3 Surprising Habits of Smart Investors

"We don't buy cheap stocks. We look for quality businesses we want to own and wait until they get cheap" says Vulcan Value Partners manager C.T. Fitzpatrick. "When the conditions are right, you can catch some really big, beautiful fish." Later in the same interview, Fitzpatrick added: "There are companies that I've personally followed for my entire career, waiting for the chance to buy."

"Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome).

Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count. If you are right about a business whole value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analyzed an investment alternative characterized by many constantly shifting and complex variables."

Peter Lynch said it in a succinct and colorful way: "Never invest in any idea you can't illustrate with a crayon".

My favorite bits from Howard Mark's Dec 18 2014 memo : Lessons of Oil

Despite my protestations that I don’t know any more than others about future macro events – people insist on asking me about the future. Over the last eighteen months , most of the macro questions I’ve gotten have been about whether the Fed would move to increase interest rates, and particularly when.

Since mid-2013, the near-unanimous consensus has been that rates would rise. And, of course, the yield on the 10-year Treasury has fallen from roughly 3% at that time to 2.2% today. I mention it to provide a reminder that what “everyone knows” is usually unhelpful at best and wrong at worst.

• Not only did the investing herd have the outlook for rates wrong, but it was uniformly inquiring about the wrong thing. In short, while everyone was asking whether the rate rise would begin in December 2014 or April 2015 (or might it be June?) – in response to which I consistently asked why the answer matters and how it might alter investment decisions – few people I know were talking about whether the price of oil was in for a significant change.

-I included “$100 oil” (since a barrel was selling in the $70s at the time) and ended with “the things I haven’t thought of.” I suggested that it’s usually that last category – the things that haven’t been considered – we should worry about most. Asset prices are often set to allow for the risks people are aware of. It’s the ones they haven’t thought of that can knock the market for a loop.

• In my book The Most Important Thing, I mentioned something I call “the failure of imagination.” I defined it as “either being unable to conceive of the full range of possible outcomes or not understanding the consequences of the more extreme occurrences.” Both aspects of the definition apply here.

The usual starting point for forecasting something is its current level. Most forecasts extrapolate, perhaps making modest adjustments up or down. In other words, most forecasting is done incrementally, and few predictors contemplate order-of-magnitude changes. Thus I imagine that with Brent crude around $110 six months ago, the bulls were probably predicting $115 or $120 and the bears $105 or $100. Forecasters usually stick too closely to the current level, and on those rare occasions when they call for change, they often underestimate the potential magnitude. Very few people predicted oil would decline significantly, and fewer still mentioned the possibility that we would see $60 within six months.

Most believed that the price of oil would remain around present levels. Several trillion dollars have been invested in drilling over the last few years and yet production is flat because Nigeria, Iraq and Libya are producing less. The U.S. and Europe are reducing consumption, but that is being more than offset by increasing demand from the developing world, particularly China. Five years from now the price of Brent is likely to be closer to $120 because of emerging market demand.

.

As a side note, it’s interesting to observe that growth in China already was widely understood to be slowing, but perhaps that recognition never made its way into the views on oil of those present at Byron’s lunches. This is an example of how hard it can be to appropriately factor all of the relevant considerations into complex real-world analysis.

• Turning to the second aspect of “the failure of imagination” and going beyond the inability of most people to imagine extreme outcomes, the current situation with oil also illustrates how difficult it is to understand the full range of potential ramifications. Most people easily grasp the immediate impact of developments, but few understand the “second-order” consequences . . . as well as the third and fourth. When these latter factors come to be reflected in asset prices, this is often referred to as “contagion.” Everyone knew in 2007 that the sub-prime crisis would affect mortgage-backed securities and homebuilders, but it took until 2008 for them to worry equally about banks and the rest of the economy.

The following list is designed to illustrate the wide range of possible implications of an oil price decline, both direct consequences and their ramifications:

• Lower prices mean reduced revenue for oil-producing nations such as Saudi Arabia, Russia and Brunei, causing GDP to contract and budget deficits to rise.
• There’s a drop in the amounts sent abroad to purchase oil by oil-importing nations like the U.S., China, Japan and the United Kingdom.
• Earnings decline at oil exploration and production companies but rise for airlines whose fuel costs decline.
• Investment in oil drilling declines, causing the earnings of oil services companies to shrink, along with employment in the industry.
• Consumers have more money to spend on things other than energy, benefitting consumer goods companies and retailers.
• Cheaper gasoline causes driving to increase, bringing gains for the lodging and restaurant industries.
• With the cost of driving lower, people buy bigger cars – perhaps sooner than they otherwise would have – benefitting the auto companies. They also keep buying gasoline-powered cars, slowing the trend toward alternatives, to the benefit of the oil industry.
• Likewise, increased travel stimulates airlines to order more planes – a plus for the aerospace companies – but at the same time the incentives decline to replace older planes.
• By causing the demand for oil services to decline, reduced drilling leads the service companies to bid lower for business. This improves the economics of drilling and thus helps the oil companies.
• Ultimately, if things get bad enough for oil companies and oil service companies, banks and other lenders can be affected by their holdings of bad loans.

• Further, it’s hard for most people to understand the self-correcting aspects of economic events.

• A decline in the price of gasoline induces people to drive more, increasing the demand for oil.
• A decline in the price of oil negatively impacts the economics of drilling, reducing additions to supply.
• A decline in the price of oil causes producers to cut production and leave oil in the ground to be sold later at higher prices.

In all these ways, lower prices either increase the demand for oil or reduce the supply, causing the price of oil to rise (all else being equal). In other words, lower oil prices – in and of themselves – eventually make for higher oil prices. This illustrates the dynamic nature of economics.

• Finally, in addition to the logical but often hard-to-anticipate second-order consequences or knock-on effects, negative developments often morph in illogical ways. Thus, in response to cascading oil prices, “I’m going to sell out of emerging markets that rely on oil exports” can turn into “I’m going to sell out of all emerging markets,” even oil importers that are aided by cheaper oil.

In part the emotional reaction to negative developments is the product of surprise and disillusionment. Part of this may stem from investors’ inability to understand the “fault lines” that run through their portfolios. Investors knew changes in oil prices would affect oil companies, oil services companies, airlines and autos. But they may not have anticipated the effects on currencies, emerging markets and below-investment grade credit broadly. Among other things, they rarely understand that capital withdrawals and the resulting need for liquidity can lead to urgent selling of assets that are completely unrelated to oil. People often fail to perceive that these fault lines exist, and that contagion can reach as far as it does. And then, when that happens, investors turn out to be unprepared, both intellectually and emotionally.

A grain of truth underlies most big up and down moves in asset prices. Not just “oil’s in oversupply” today, but also “the Internet will change the world” and “mortgage debt has historically been safe.” Psychology and herd behavior make prices move too far in response to those underlying grains of truth, causing bubbles and crashes, but also leading to opportunities to make great sales of overpriced assets on the rise and bargain purchases in the subsequent fall. If you think markets are logical and investors are objective and unemotional, you’re in for a lot of surprises. In tough times, investors often fail to apply discipline and discernment; psychology takes over from fundamentals; and “all correlations go to one,” as things that should be distinguished from each other aren’t.

• Energy is a very significant part of the high yield bond market. In fact, it is the largest sector today (having taken over from media/telecom, which has traditionally been the largest). This is the case because the exploration industry is highly capital-intensive, and the high yield bond market has been the‎ easiest place to raise capital. The knock-on effects of a precipitous fall in bond prices in the biggest sector in the high yield bond market are potentially substantial: outflows of capital, and mutual fund and ETF selling. It would be great for opportunistic buyers if the selling gets to sectors that are fundamentally in fine shape . . . because a number of them are. And, in fact, low oil prices can even make them better.
• An imperfect analogy might be instructive: capital market conditions for energy-related assets today are not unlike what we saw in the telecom sector in 2002. As in telecom, you’ve had the confluence of really cheap financing, innovative technology, and prices for the product that were quite stable for a good while. [To this list of contributing factors, I would add the not-uncommon myth of perpetually escalating demand for a product.] These conditions resulted in the creation of an oversupply of capacity in oil, leading to a downdraft. It’s historically unprecedented for the energy sector to witness this type of market downturn while the rest of the economy is operating normally. Like in 2002, we could see a scenario where the effects of this sector dislocation spread wider in a general “contagion.”
• Selling has been reasonably indiscriminate and panicky (much like telecom in 2002) as managers have realized (too late) how overexposed they are to the energy sector. Trading desks do not have sufficient capital to make markets, and thus price swings have been predictably volatile. The oil selloff has also caused deterioration in emerging market fundamentals and may force spreads to gap out there. This ultimately may create a feedback loop that results in contagion to high yield bonds generally.

• Over the last year or so, while continuing to feel that U.S. economic growth will be slow and unsteady in the next year or two, I came to the conclusion that any surprises were most likely to be to the upside. And my best candidate for a favorable development has been the possibility that the U.S. would sharply increase its production of oil and gas. This would make the U.S. oil-independent, making it a net exporter of oil and giving it a cost advantage in energy – based on cheap production from fracking and shale – and thus a cost advantage in manufacturing. Now, the availability of cheap oil all around the world threatens those advantages. So much for macro forecasting!

• There’s a great deal to be said about the price change itself. A well-known quote from economist Rudiger Dornbusch goes as follows: “In economics things take longer to happen than you think they will, and then they happen faster than you thought they could.” I don’t know if many people were thinking about whether the price of oil would change, but the decline of 40%-plus must have happened much faster than anyone thought possible.

• “Everyone knows” (now!) that the demand for oil turned soft (due to sluggish economic growth, increased fuel efficiency and the emergence of alternatives) at the same time that the supply was increasing (as new sources came on stream). Equally, everyone knows that lower demand and higher supply imply lower prices. Yet it seems few people recognized the ability of these changes to alter the price of oil. 

A price that’s kept aloft by the operation of a cartel is, by definition, higher than it would be based on supply and demand alone. Maybe the thing that matters is how far the cartelized price is from the free-market price; the bigger the gap, the shorter the period for which the cartel will be able to maintain control. Initially a cartel or a few of its members may be willing to bear pain to support the price by limiting production even while others produce full-out. But there may come a time when the pain becomes unacceptable and the price supporters quit. The key lesson here may be that cartels and other anti-market mechanisms can’t hold forever. Maybe we’ve just proved that this extends to the effectiveness of cartels.

• Anyway, on the base of 93 million barrels a day of world oil use, some softness in consumption combined with an increase in production to cut the price by more than 40% in just a few months. What this proves – about most things – is that to Dornbusch’s quote above we should append the words “. . . and they go much further than you thought they could.”

The extent of the price decline seems much greater than the changes in supply and demand would call for. Perhaps to understand it you have to factor in (a) Saudi Arabia’s ceasing to balance supply and demand in the oil market by cutting production, after having done so for many years, and (b) a large contribution to the decline on the part of psychology

The price of oil thus may have gone from too high (supported by OPEC and by Saudi Arabia in particular) to too low (depressed by negative psychology). It seems to me with regard to the latter that the price fell too far for some market participants to maintain their equanimity. I often imagine participants’ internal dialogues. At $110, I picture them saying, “I’ll buy like mad if it ever gets to $100.” Because of the way investor psychology works, at $90 they may say, “If it falls to $70, I’ll give serious thought to buying.” But at $60 the tendency is to say, “It’s a falling knife and there’s no way to know where it’ll stop; I wouldn’t touch it at any price.”

But it’s usually smarter to buy after they’ve fallen for a while.

• I said it about gold in All That Glitters (November 2010), and it’s equally relevant to oil: it’s hard to analytically put a price on an asset that doesn’t produce income. In principle, a non- perishable commodity won’t be priced below the variable production cost of the highest-cost producer whose output is needed to satisfy total demand. It’s clear that today’s oil price is well below that standard.

It’s hard to say what the right price is for a commodity like oil . . . and thus when the price is too high or too low. Was it too high at $100-plus, an unsustainable blip? History says no: it was there for 43 consecutive months through this past August. And if it wasn’t too high then, isn’t it laughably low today? The answer is that you just can’t say. . And if you can’t be confident about what the right price is, then you can’t be definite about financial decisions regarding oil.

 Regardless, it seems that a market that was unconcerned about things like oil and its impact on economies and assets now has lost its composure. Especially given the pervasive role of energy in economic life, uncertainty about oil introduces uncertainty into many aspects of investing.

“Value investing” is supposed to be about buying based on the present value of assets, rather than conjecture about profit growth in the far-off future. But you can’t assess present value without taking some position on what the future holds, even if it’s only assuming a continuation of present conditions or perhaps – for the sake of conservatism – a considerably lower level. Recent events cast doubt on the ability to safely take any position.

One of the things that’s central to risk-conscious value investing is ascertaining the presence of a generous cushion in terms of “margin of safety.” This margin comes from conviction that conditions will be stable, financial performance is predictable, and/or an entry price is low relative to the asset’s intrinsic value. But when something as central as oil is totally up for grabs, as investors seem to think is the case today, it’s hard to know whether you have an adequate margin.

On the other hand –  high levels of confidence, complacency and composure on the part of investors have in good measure given way to disarray and doubt, making many markets much more to our liking. For the last few years, interest rates on the safest securities – brought low by central banks – have been coercing investors to move out the risk curve. Sometimes they’ve made that journey without cognizance of the risks they were taking, and without thoroughly understanding the investments they undertook. Now they find themselves questioning many of their actions, and it feels like risk tolerance is being replaced by risk aversion. This paragraph describes a process through which investors are made to feel pain, but also one that makes markets much safer and potentially more bargain-laden.

In particular with regard to the distress cycle, confident and optimistic credit markets permit the unwise extension of credit to borrowers who are undeserving but allowed to become overlevered nevertheless. Negative subsequent developments can render providers of capital less confident, making the capital market less accommodative. This cycle of easy issuance followed by defrocking has been behind the three debt crises that delivered the best buying opportunities in our 26 years in distressed debt

But we knew great buying opportunities wouldn’t arrive until a negative “igniter” caused the tide to go out, exposing the debt’s weaknesses. The current oil crisis is an example of something with the potential to grow into that role. We’ll see how far it goes.

For the last 3½ years, Oaktree’s mantra has been “move forward, but with caution.” For the first time in that span, with the arrival of some disarray and heightened risk aversion, events tell us it’s appropriate to drop some of our caution and substitute a degree of aggressiveness.

Buy gradually

Buying : Leave Room to Average Down

Seth Klarman:

“…The single most crucial factor in trading is developing the appropriate reaction to price fluctuations…One half of trading involves learning how to buy. In my view, investors should usually refrain from purchasing a “full position” (the maximum dollar commitment they intend to make) in a given security all at once…Buying a partial position leaves reserves that permit investors to “average down,” lowering their average cost per share, if prices decline…If the security you are considering is truly a good investment, not a speculation, you would certainly want to own more at lower prices. If, prior to purchase, you realize that you are unwilling to average down, then you probably should not make the purchase in the first place…”

Finance academics define risk as volatility, whereas value investors see risk as the probability that adverse outcomes in the future will permanently impair the business’s potential cash flow and investor’s capital.

From :16-rules-for-investors-to-live-by

1. All past market crashes are viewed as opportunities, but all future market crashes are viewed as risks.

If you can recognize the silliness in this, you are on your way to becoming a better long-term investor.

2. Most bubbles begin with a rational idea that gets taken to an irrational extreme.

Dot-com companies did change the world, land is limited and precious metals can hedge against inflation. But none of these stories justified paying outlandish prices for stocks, houses or gold. Bubbles are so easy to fall for precisely because, at least in part, they are based on solid logic.

3. “I don’t know” are three of the most underused words in investing.

I don’t know what the market will do next month. I don’t know when interest rates will rise. I don’t know how low oil prices will go. Nobody does. Listening to people who say they do will cost you a lot of money. Alas, you can’t charge a consulting fee for humility.

4. Short-term thinking is at the root of most investing problems.

If you can focus on the next five years while the average investor is focused on the next five months, you have a powerful edge. Markets reward patience more than any other skill.

5. Investing is overwhelmingly a game of psychology.

Success has less to do with your math skills—or your relationships with in-the-know investors—and more to do with your ability to resist the emotional urge to buy high and sell low.

6. Things change quickly—and more drastically than many think.

Fourteen years ago, Enron was on Fortune magazine’s list of the world’s most-admired companies, Apple was a struggling niche company, Greece’s economy was booming, and the Congressional Budget Office predicted the federal government would be effectively debt-free by 2009. There is a tendency to extrapolate the recent past, but 10 years from now the business world will look absolutely nothing like it does today.

7. Three of the most important variables to consider are the valuations of stocks when you buy them, the length of time you can stay invested, and the fees you pay to brokers and money managers.

These three items alone will have a major impact on how you perform as an investor.

8. There are no points awarded for difficulty.

Nobody cares how much effort you put into researching a stock, how detailed your spreadsheet is or how complicated your options strategy is. For many people, a diversified buy-and-hold strategy is the most reasonable way to invest. Some find it boring, but the purpose of investing isn’t to reduce boredom; it is to increase wealth.

9. A couple of times per decade, investors forget that recessions happen a couple of times per decade.

When recessions come, stocks tend to plunge. This is an unfortunate, but perfectly normal, part of the process—like a Florida hurricane. You should get used to it. If you are unable to stomach declines, consider another investment.

10. Don’t check your brokerage account once a day and your blood pressure only once a year.

Constant updates make investing more emotional than it needs to be. Check your brokerage account as infrequently as necessary to prevent you from becoming emotional about market moves.

11. You should pay the most attention to the investor who talks about his or her mistakes.

Avoid those investors who don’t—their mistakes are likely to be worse.

12. Change your mind when the facts change.

Admit when you are wrong. Learn from your mistakes. Ignore those who refuse to do the same. This will save you untold investing misery.

13. Read past stock-market predictions, and you will take current predictions less seriously.

Markets are complicated, and human emotions are unpredictable. Unless you have illegal insider information, predicting what stocks will do in the short run is unimaginably difficult.

14. There is no such thing as a normal economy, or a normal stock market.

Investors have a tendency to want to “wait for things to get back to normal,” but markets and economies are almost constantly in some state of absurdity, booming or busting at rates that seem (and are) unsustainable.

15. It can be difficult to tell the difference between luck and skill in investing.

There are millions of investors around the world. Randomness guarantees that some will be wildly successful by pure chance. But you will rarely find an investor who attributes his success to luck. When you combine a market system that generates randomness with a belief that your actions reflect your intelligence, you get some misleading results.

From Janet Lowe's Ben Graham on Value Investing

My fave excerpts:

A true investor seldom is forced to sell his shares

If you aren't certain that you understand and can value your business far better than Mr. market, you don't belong in the game

Price will tend to fluctuate around value. The price of the security is like a stopped clock it will be right twice a day, and will be wrong all the rest of the time. The main principle in what we are saying is that securities are chronically mispriced in relation to the intrinsic value.

I have found it useful to estimate the central value of the Dow Jones industrial average by the simple method of capitalizing 10 year average earnings at twice the interest rate for high-grade bonds.

Odlum decided the way to make money was to buy companies in trouble and revamp them. Graham debated with him, saying that it was safer to buy a variety of stocks. Odlum later invested all of his money in uranium companies. they went down and he had all his eggs in one basket.

Why not invest your assets in the companies you really like? As Mae West said, ‘Too much of a good thing can be wonderful.” — Warren Buffett

From :
For most of us, it’s easier to understand a business or product we encounter on a regular basis. Investing in what you know allows you to more easily place value on the stock and stay informed on industry trends. If you don’t understand what the company does or how it makes money, how will you be able to manage your investment? (When it dips 50%, would you hold on?)

Finding companies you know is only the beginning; the circle of competence is only meant to help you stay within your arena of expertise. Once you have generated a list of the companies you understand, the next step should be conducting an analysis of the financials. Don’t worry — you don’t have to be a finance whiz to understand the basics of the stock market. Berkshire Hathaway’s investment philosophy is surprisingly simple: The company should have consistent earning power, good return on equity, capable management and be sensibly priced. Investing is less about the stock price and more about the value of the business — is it a good one?

Successful investing is more about learning over time and slowly expanding your circle of competence. For now, stick with what you know and focus on the long term.. 

From an old Economist article : 

Mr Buffett has consistently beaten the market by buying good-quality firms that he is confident he understands, typically outfits operating in a relatively stable industry. His preferred acquisitions have a hard-to-replicate advantage over their competitors—a popular brand, say, or a degree of monopoly power—that he likes to describe as a protective “moat”. He also favours firms with a strong ethical culture, and management that is interested in doing a good job, not just making money. If he gets the shares when they are cheap (just after Coca-Cola’s “new Coke” debacle, for example), all the better: but “it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he says.

Warren Buffet quotes from Janet Lowe's book

Warren Buffet quotes from the Janet Lowe book

- I would take one industry at the time and develop some expertise in half a dozen. I would not take the conventional wisdom now about any industries as meaning a damn thing. I will try to think it through.

If I was looking at an insurance company or a paper company, I would put myself in the frame of mind that I had just inherited the company and it was the only asset my family was ever going to own.

 What would I do with it? What am I thinking about? What am I worried about? who are my competitors? Who are my customers? Go out and talk to them. Find out the strengths and weaknesses of this particular company versus other ones.



-Investing is reporting. I told him to imagine he had been assigned an in-depth article about his own paper. Hed ask a lot of questions And dig up a lot of facts. Hed know the Washington Post. And that's all there is to it.


-Warren talks about these discounted cash flows....I've never seen him do one Munger huffed.. It's true replied buffet if the value of the company doesn't just scream out at you, it's too close.

-You need a moat in business to protect you from the guy who is going to come along and offer your product for a penny cheaper.

-The definition of a great company is one that will be great  for 25-30 years.

-Purchasing junk bonds, we are dealing with enterprises that are far more marginal. These businesses are usually overloaded with debt and often operating in industries characterized by low returns on capital. Additionally the quality of management is sometimes questionable. Management may even have interests that Are directly counter  to does of shareholders. Therefore we expect that we will have occasional large losses in junk issues. So far however we have done reasonably well in this field.

-More than once buffet has acquired an interest in companies that face serious financial difficulties, a condition that did not alter their franchise value. "it was similar to American Express in the late 1963 when the salad oil scandal hit it. It did not put the franchise of the travelers check or the credit card. It could have ruined the balance sheet of American Express, but the answer of course was that American Express with no net worth was worth a tremendous amount of money.
And geico with no net worth was worth a tremendous amount of money, too, except it might get closed up the next day because it had no net worth ; but I was satisfied that the net worth would be there. The truth is a lot of insurance companies for the ownership of it would have put up the net worth. We would have put it up.

Excerpts from Valuewalk Article- Li Lu on Charlie Munger :

- Till this day, the vast majority of individual investors and institutional investors still follow investment philosophies that are based on “bad theories.” For example, they believe in the efficient market hypothesis, and therefore believe that the volatility of stock prices is equivalent to real risk, and they place a strong emphasis on volatility when they judge your performance. In my view, the biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital...They still accept the theories that say “volatility is risk” and “the market is always right.”

-But this old man spoke succinctly

-The numbers still fluctuate as before, but eventual result is substantial growth. From the fourth quarter of 2004 to the end of 2009, the new fund returned an annual compound growth rate of 36% after deducting operating costs. From the inception of the fund in January 1998, the fund returned an annual compound growth rate in excess of 29%. In 12 years, the capital grew more than 20 folds

-When Charlie thinks about things, he starts by inverting. To understand how to be happy in life, Charlie will study how to make life miserable; to examine how business become big and strong, Charlie first studies how businesses decline and die; most people care more about how to succeed in the stock market, Charlie is most concerned about why most have failed in the stock market.

-Charlie constantly collects and researches the notable failures in each and every type of people, business, government, and academia, and arranges the causes of failures into a decision-making checklist for making the right decisions. Because of this, he has avoided major mistakes in his decision making in his life and in his career.

-Charlie’s mind is original and creative, never subject to any restrictions, shackles, or dogmas. He has the curiosity of children and possesses the qualities of a top-notch scientists and their scientific research methods. He has a strong thirst for knowledge throughout his life and is interested in practically all areas. To him, with the right approach, any problem can be understood through self-study, building innovations on the foundation laid by those who came earlier.

-Circle of Competence: Charlie said, if I want to hold a view, if I cannot refute or disprove this view better than the smartest, most capable, most qualified person on Earth, then I’m not worthy of holding that view. So when Charlie truly holds a certain point of view, his thinking is not only original and unique, but also almost never wrong.

-A beautiful lady once insisted that Charlie use one word to sum up the source of his success, Charlie said it was being “rational.”. Even in a completely unfamiliar territory, with just one look he could see through to the essence of things. Buffett calls this characteristic of Charlie the “two-minute effect” — he said Charlie can, in the shortest time possible, unravel the nature of a complex business and understand it better than anyone else can.

-I asked Charlie: “You have your own private jet and so does Berkshire, why do you bother going through the trouble of flying commercial?”

Charlie replied:”Firstly, it is a waste of fuel for me to fly in my private jet. Secondly, I feel safer flying in a commercial aircraft.” However, the real reason is Charlie’s third reason, “I want to live an engaged life. I don’t want to be isolated.”

-Once he went to Seattle to attend a board meeting, taking the economy class as usual, he sat beside a Chinese girl who was doing her calculus homework throughout the flight. He was impressed with this Chinese girl because he has difficulty imagining American girls of the same age having such power of concentration to ignore noise on the aircraft and concentrate on studying.

-Because of this, he believes people must be strict and demanding on themselves, continuously improving their discipline in life in order to overcome the innate weaknesses of human nature. This way of life is, to Charlie, a moral requirement. To an outsider, Charlie might seem like a monk; but to Charlie, this process is both rational and pleasant and it allows people to having a successful and happy life.

-If Confucius returned 2000 years later to the commercialized China, his teaching will probably be: have your heart in the right place, cultivate your moral character, fortify your family, acquire wealth, and help the world!

From :

The career advice taht really helped me the most to decide what to focus on

My favorite career advice excerpts from The 20 Uncommon Career & Life Lessons from My Weekend with Warren Buffett:

2. Don’t expect people to change. They’ve realized how futile is to try to changes others’ behavior. We love to paint a rosy picture that things will be better after some special event happens (an acquisition, a marriage, kids, a move, a new job, whatever), but for the most part, how people act is out of our control. Make sure the people you surround yourself with are the right fit from the beginning.

“If we thought the success of our investment depended on them taking our advice, we’d move on.” – Charlie Munger

6. Don’t expose yourself to steps that can keep you from tomorrow. It can take a lifetime to build a masterpiece, but only an instant to destroy it. No matter what the possible benefit, these two guys refuse to do anything that opens them to the chance of going back to zero. That’s why they don’t use debt, and in their last 50 years have never faced a truly dire situation.

7. Tell the truth to a group of people who believe what you do, and things will work out. I do everything I can to run Live Your Legend the same way. Align with the right people and do it in an honest way. Pretty simple. 

8. Great things are built as a result of the combination of time and consistency towards a cause you deeply believe in. Find what you’re good at – what you want to build. Then put your head down and allow a lifetime to build it. 40 years ago Buffet wrote out 13 principles of what he wanted to create and how he wanted it run. He then built a culture that executed on that every day. Just about anything can be done with the right focus, time and consistency. As long as you care enough and aren’t in too much of a hurry.

10. There’s little progress without failure. These guys quickly admit not only that they’ve had plenty of failures, but that they wouldn’t have what they do if it wasn’t for the screw ups. Unsuccessful people avoid failure at all cost. The successful ones embrace it, learn from it and keep building. If you’re not screwing up every once in a while, you’re not trying hard enough. 

11. You don’t need to be able to do that many things right to succeed. In fact, success is inversely proportional to how many things you try to do. Do a few things really well. Focus on that. Hire others to do the rest or don’t do it at all. The most successful businesses and people have a much longer list of what they aren’t willing to do, than what they actually spend time on. Warren is notorious for how many things he’s says no to. Stay within your circle of competence. When in doubt, do less.

14. Purpose is the ultimate compensation. Job satisfaction and loyalty come from the autonomy to do the work that matters to you, not from a lofty salary or bonus. Give people autonomy and trust to do things they are good at. Avoid micro-managing. Don’t think you can do their skill better than they can.

Buffett recently mentioned how he’d give up his private jet long before giving up his Internet access. And who wouldn’t? But think what that means. A billionaire has access to every tool in the world, yet the most important is the one that all of us have equal (and free) access to.

From http://www.businessinsider.com/munger-explains-buffetts-success-2014-9 :

So what exactly did Munger identify as some of the unique keys to Buffett being "so unusually successful"? He began by noting:

The first factor is the mental aptitude. Warren is seriously smart.

Munger continued by noting Buffett "out-achieved his mental aptitude." Then there's the good effect caused by his doing this since he was 10 years old. It's very hard to succeed until you take the first step in what you're strongly interested in. There's no substitute for strong interest and he got a very early start.

Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Warren was lucky that he could still learn effectively and build his skills, even after he reached retirement age. Warren's investing skills have markedly increased since he turned 65.

Munger notes this reality is "really crucial," because he suggests, "having watched the whole process with Warren, I can report that if he had stopped with what he knew at earlier points, the record would be a pale shadow of what it is."

And Buffett hasn't just continued his learning, but he's also seen all of the steps laid out on the path set before him as a chance to gain better understanding. Munger compares Buffett to the Roman emperor Marcus Aurelius who "had the notion that every tough stretch was an opportunity — to learn, to display manhood, you name it. To him, it was as natural as breathing to have tough stretches."

As a result, Munger suggested, "Warren doesn't spend any time on self-pity, envy, etc."

Put simply, Buffett has continually dedicated himself to refining and expanding his understanding of investing.

The key to remember

Warren Buffett once said:

I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.

Very nice interview at  Q&A With Guy Spier Of Aquamarine Capital :

My excerpts:

1. What company have you owned the past that was the most surprising to you? (In prospect or in retrospect)

I think that many have surprised me in one direction or another, but one of the more memorable was Duff and Phelps Credit rating - which I purchased in the mid-1990's at a 7 Price to Earnings ratio. The company proceeded to increase in value by seven times over 2-3 years before being purchased by Fimalac, the owner of Fitch. I had expected the stock to double, but I did not understand that I had purchased a super high quality business with a manager who was committed to devoting every cent of free cash, which was in excess of reported earnings, to repurchasing shares.

2. Which rule(s) of your checklist would surprise average investors the most, if any?

I actually think that none of them would. They are common sense items that anyone would look over and say, "yes - that makes obvious sense". What is key is not that they are surprising, but that in the wrong state of mind, I might easily skip over a particular factor in evaluating an investment.

3. Would you advise young people to get a CFA charter or an MBA or is there a better way to become an investor?

I don't think that either is necessary in order to become a good investor. Attending the Berkshire Hathaway meetings, studying Warren Buffett and reading the Berkshire Annual Reports, along with Poor Charlie's Almanack are an absolute necessity, in my view.

5. What would you say is the most common mistake that value investors make? Does this matter if the value investor is amateur or professional?

I think that all-too-often, we feel like we are forced to take a decision. Amateur investors, investing their own money, have a huge advantage in this over the professionals. When you are a professional, there is a whole system of oversight that is constantly saying, "What have you done for me lately!" or in baseball terminology, "Swing you fool!"

Amateur investors who are investing unlevered funds that they don't need any time soon have no such pressures.

6. Financial companies are usually a big part of the portfolio of value investors, because they seem cheap to industrials and utilities. But every now and then financials wipe out in a credit crisis. Why don't many value investors pay attention to credit conditions?

Yes, that's absolutely true. And yes, value investors probably pay far too little attention to the credit cycle. In my case, I think that I was utterly convinced that my stocks were sufficiently cheap, such that I could invest without regard to financial cycles. But I learned my lesson big time in 2008 when I was down a lot. I now subscribe to Grant's Interest Rate Observer so as to help me track the credit cycle.

9. How do you balance keeping an independent view versus interacting with respected professional friends who have their views?

I try to switch off, or distance myself from people who I think communicate in a way that is not productive for me. The key is to have the kind of discourse that allows other people to come to their own conclusion. Asking open ended questions and not telling someone what to do are important aspects of that. When I come across people who do that, I try to build closer relationships with them. If they don't I might still keep them in my circle, but I would not allow myself to interact with them too often - because I don't want to be swayed.

11. How do you feel about quantitative value investors?

If you mean to use statistical methods to uncover value, Ben Graham style, then I'm all for it. That is what I did when I created my Japan basket. That said, I found it hard and monotonous work. Monotonous because, in the case of Japan it did not lead to greater knowledge or wisdom about the world, because there was a limit on the degree to which I could drill down.