Charlie Munger’s Quotes = Mungerisms

Here is my list of “Mungerisms”.Over time I have used many of them to my advantage and the rest are in my list as reminders of ways I could improve my condition or as cautions against folly.I hope you too find them just as helpful as I do.

• If you don’t know who Charlie Munger is , here is a small introduction: https://wealthymatters.com/2011/02/12/charlie-munger/

 

1. (1)”Most people are too fretful, they worry to much.  Success means being very patient, but aggressive when it’s time.”

(2)”Using [a stock’s] volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return. Some great businesses have very volatile returns – for example, See’s [a candy company owned by Berkshire] usually loses money in two quarters of each year – and some terrible businesses can have steady results.”

(3)”I think that, every time you saw the word EBITDA [earnings], you should substitute the word “bullshit” earnings.”

(4)“Warren talks about these discounted cash flows. I’ve never seen him do one.” “It’s true,” replied Buffett. “If the value of a company doesn’t just scream out at you, it’s too close.”

(5)”If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That’s hard. But if you buy a few great companies, then you can sit on your ass. That’s a good thing.”

(6)”We bought a doomed textile mill [Berkshire Hathaway] and a California S&L [Wesco] just before a calamity. Both were bought at a discount to liquidation value.”

(7)”For society, the Internet is wonderful, but for capitalists, it will be a net negative. It will increase efficiency, but lots of things increase efficiency without increasing profits. It is way more likely to make American businesses less profitable than more profitable.  This is perfectly obvious, but very little understood.”

(8)”Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary.”

(9)”Investing is where you find a few great companies and then sit on your ass.”

(10)”Warren spends 70 hours a week thinking about investing .”

(11)”People calculate too much and think too little.”

(12)”Whenever you think something or some person is ruining your life, it’s you. A victimization mentality is so debilitating.”

(13)”The tax code gives you an enormous advantage if you can find some things you can just sit with.”

(14)”If you’re going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum.  In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening…”

(15)”The number one idea, is to view a stock as an ownership of the business [and] to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you’re paying for. Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor.”

(16)”Failure to handle psychological denial is a common way for people to go broke. You’ve made an enormous commitment to something.You’ve poured effort and money in.  And the more you put in, the more that the whole consistency principle makes you think,” Now it has to work. If I put in just a little more, then it ’all work…. People go broke that way —because they can ’t stop,rethink,and say,’ I can afford to write this one off and live to fight again.  I don’t have to pursue this thing as an obsession —in a way that will break me .’ “

(17)”…in terms of business mistakes that I’ve seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations. Warren and I personally don’t drill oil wells. We pay our taxes. And we’ve done pretty well, so far. Anytime somebody offers you a tax shelter from here on in life, my advice would be don’t buy it.”

(18)”I believe that we are at or near the apex of a great civilization….In 50-100 years, if we’re a poor third to some countries in Asia, I wouldn’t be surprised. If I had to bet, the part of the world that will do best will be Asia.”

(19)”To some extent, stocks are like Rembrandts. They sell based on what they’ve sold in the past. Bonds are much more rational. No-one thinks a bond’s value will soar to the moon.” “Imagine if every pension fund in America bought Rembrandts. Their value would go up and they would create their own constituency.”

(20)”It’s crazy to assume that what’s happening in Argentina and Japan is inconceivable here.” 

(21)”REITs are way more suitable for individual shareholders than for corporate shareholders. And Warren has enough residue from his old cigar-butt personality that when people became disenchanted with the REITs and the market price went down to maybe a 20% discount from what the companies could be liquidated for, he bought a few shares with his personal money. So it’s nice that Warren has a few private assets with which to pick up cigar butts in memory of old times – if that’s what keeps him amused.”

(22)”Smart people aren’t exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”

(23))”The whole concept of the house advantage is an interesting one in modern money management. The terms of the managers of the private partnerships look a lot like the take of the croupier at Monte Carlo, only greater.” 

(24)”There are always  people who will be better at some thing than you are.You have to learn to be a follower before you become a leader.”

(25)”We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side. If you can’t state arguments against what you believe better than your detractors, you don’t know enough.”

(26) “I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I’ve seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not.”

(27)”A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.”

(28)”There are two types of mistakes: 1) doing nothing[We saw it, but didn’t act on it]; what Warren calls “sucking my thumb” and 2) buying with an eyedropper things we should be buying a lot of.”

(29)”Checklist routines avoid a lot of errors. You should have all of this elementary wisdom, and you should go through a mental checklist in order to use it. There is no other procedure that will work as well.”

(30)”Litigation is notoriously time-consuming, inefficient, costly and unpredictable.”

(31)”Finding a single investment that will return 20% per year for 40 years tends to happen only in dreamland. In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That’s your opportunity cost. That’s what you learn in freshman economics. The game hasn’t changed at all. That’s why Modern Portfolio Theory is so asinine.”

(32)”The more hard lessons you can learn vicariously rather than through your own hard experience, the better.”

 “Well, some of our success we predicted and some of it was fortuitous.”

(33)”The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another — this was the attitude in venture capital until a few years ago. This was not the case at all for us — we scrounged around for companies to buy. For 20 years, we didn’t buy more than one or two per year. …It’s fair to say that we were rooting around. There were no commissioned salesmen. Anytime you sit there waiting for a deal to come by, you’re in a very dangerous seat.”

(34)”Our biggest mistakes, were things we didn’t do, companies we didn’t buy.”

(35)”You can progress only when you learn the method of learning.”

(36)”It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

(37)”Berkshire’s past record has been almost ridiculous. If Berkshire had used even half the leverage of, say, Rupert Murdoch, it would be five times its current size.”

(38)”It took us months of buying all the Coke stock we could to accumulate $1 billion worth — equal to 7% of the company. It’s very hard to accumulate major positions.”

(39)”All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return”

(40)”If you have only a little capital and are young today, there are fewer opportunities than when I was young. Back then, we had just come out of a depression. Capitalism was a bad word. There had been abuses in the 1920s. A joke going around then was the guy who said, ‘I bought stock for my old age and it worked — in six months, I feel like an old man!’ “It’s tougher for you, but that doesn’t mean you won’t do well — it just may take more time. But what the heck, you may live longer.”

(41)”Regarding the demographic trend called Baby Boomers, it’s peanuts compared to the trend of economic growth.  Over the last century, [our] GNP is up seven times.  This was not caused by Baby Boomers, but by the general success of capitalism and the march of technology.  Those trends were so favorable that little blips in the birth rate were not that significant.  We can keep social peace as long as GNP rises 3% annually – this can pay for spending by politicians.  If we ever got to stasis [no growth], then with all the promises, you’d get real tensions between the generations.  The Baby Boomers would exacerbate it, but the real cause would be lack of growth.”

(42)”Practically everybody overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.”

(43)”You must know the big ideas in the big disciplines, and use them routinely — all of them, not just a few. Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.”

(44)”The whole concept of dividing it up into ‘value’ and ‘growth’ strikes me as twaddle. It’s convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing.”

(45)”In my whole life, I have known no wise people who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads, at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

(46)”We read a lot.  I don’t know anyone who’s wise who doesn’t read a lot.  But that’s not enough: You have to have a temperament to grab ideas and do sensible things.  Most people don’t grab the right ideas or don’t know what to do with them.”

(47)”We get these questions a lot from the enterprising young. It’s a very intelligent question: You look at some old guy who’s rich and you ask, ‘How can I become like you, except faster?”

(48)”It takes almost no capital to open a new See’s candy store. We’re drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control”

(49)”It’s dangerous to short stocks.”

(50)”Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.”

(51)”It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and and have the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?”

(52)”…the cost of being a publicly traded stock has gone way, way up. It doesn’t make sense for a little company to be public anymore. A lot of little companies are going private to be rid of these burdensome requirements….” 

(53)”Well the open-outcry auction is just made to turn the brain into mush: you’ve got social proof, the other guy is bidding, you get reciprocation tendency, you get deprival super-reaction syndrome, the thing is going away… I mean it just absolutely is designed to manipulate people into idiotic behavior.”

(54)”The problem with closed bid auctions is that they are frequently won by people making a technical mistake, as in the case with Shell paying double for Belridge Oil. You can’t pay double the losing bid in an open outcry auction.”

(55)”We’re partial to putting out large amounts of money where we won’t have to make another decision.”

(56)”Understanding how to be a good investor makes you a better business manager and vice versa.”

(57)”What’s fascinating . . .is that you could now have a business that might have been selling for $10 billion where the business itself could probably not have borrowed even $100 million. But the owners of that business, because its public, could borrow many billions of dollars on their little pieces of paper- because they had these market valuations. But as a private business, the company itself couldn’t borrow even 1/20th of what the individuals could borrow.”

(58)”I constantly see people rise in life who are not the smartest – sometimes not even the most diligent. But they are learning machines; they go to bed every night a little wiser than when they got up. And, boy, does that habit help, particularly when you have a long run ahead of you.”

(59)”The basic concept of value to a private owner and being motivated when you’re buying and selling securities by reference to intrinsic value instead of price momentum – I don’t think that will ever be outdated.”

(60)”Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.”

(61)”Well, the questioner came from Singapore which has perhaps the best economic record in the history of any developing economy and therefore he referred to 15% per annum as modest. It’s not modest–it’s arrogant. Only someone from Singapore would call it modest.”

(62)”I don’t spend much time  regretting the past, once I’ve taken my lesson from it. I don’t dwell on it.”

(63)”If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounce on them with vigor.”

(64)”We just throw some decisions into the ‘too hard’ file and go onto the others.”

(65)”Forgetting your mistakes is a terrible error if you are trying to improve your cognition.”

(66)”In the 1930s, there as a stretch here you could borrow more against the real estate than you could sell it for. I think that’s hat’s going on in today’s private-equity world” 

(67)”Mimicking the herd invites regression to the mean.”

(68)”A lot of opportunities in life tend to last a short while, due to some temporary inefficiency… For each of us, really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.”

(69)”Everywhere there is a large commission, there is a high probability of a ripoff.”

(70)”Acknowledging what you don’t know is the dawning of wisdom.”

(71)”Recognize reality even when you don’t like it – especially when you don’t like it.”

(72)”We try more to profit from always remembering the obvious than from grasping the esoteric.”

(73) “Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”

(74)”Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations.”

(75)”Many markets get down to two or three big competitors—or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.  Over the years, we’ve tried to figure out why the competition in some markets gets sort of rational from the investor’s point of view so that the shareholders do well, and in other markets, there’s destructive competition that destroys shareholder wealth.  If it’s a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world—safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that’s been made by the shareholders of airlines since Kitty Hawk, is now a negative figure—a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.  Yet, in other fields—like cereals, for example—almost all the big boys make out. If you’re some kind of a medium grade cereal maker, you might make 15% on your capital. And if you’re really good, you might make 40%. But why are cereals so profitable—despite the fact that it looks to me like they’re competing like crazy with promotions, coupons and everything else? I don’t fully understand it.  Obviously, there’s a brand identity factor in cereals that doesn’t exist in airlines. That must be the main factor that accounts for it.And maybe the cereal makers by and large have learned to be less crazy about fighting for market share—because if you get even one person who’s hell-bent on gaining market share…. For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I could take most of the profit out of cereals. I’d ruin Kellogg in the process. But I think I could do it.”

“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add – and that your best course is to trust some expert.”

(76)”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.”

(77)”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.”

(78)”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.”

(79)”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.”

(80)”I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”

(81)”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…”

(82)”I know someone who lives next door to what you would actually call a fairly modest house that just sold for $17 million. There are some very extreme housing price bubbles going on .”

(83)”Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”

(84)”The present era has no comparable referent in the past history of capitalism. We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodom and Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences.”

(85)”Our investment style has been given a name – focus investing – which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It’s been good for us.”

(86)”You want to be very careful with intense ideology. It presents a big danger for the only mind you’re ever going to get.”

(87)”Like Warren, I had a considerable passion to get rich. “Not because I wanted Ferraris– I wanted the independence. I desperately wanted it.”

(88)”Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up.”

(89)”You can progress only when you learn the method of learning.”

(90)”It’s a good habit to trumpet your failures and be quiet about your successes.”

(91)”In effect about half our spare cash was stashed in currencies other than the dollar. I consider that a non-event. As it happens it’s been a very profitable non-event.”

(92)”As for what we like least, we don’t want kleptocracies. We need a rule of law. If people are stealing from the companies, we don’t need that.”

(93)”I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line.”

(94)”Berkshire in its history has made money betting on sure things.”

(95)”I don’t think there’s any business that we’ve bought that would have sold itself to a hedge fund. There’s a class of businesses that doesn’t want to deal with private-equity and hedge funds…thank God”

(96)”We’re guessing at our future opportunity cost. Warren is guessing that he’ll have the opportunity to put capital out at high rates of return, so he’s not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we’d change. Our hurdles reflect our estimate of future opportunity costs.”

(97)”Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas.”

(98)”The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete. So Graham had a lot of wonderful ideas.”

(99)”Ben Graham could run his Geiger counter over this detritus from the collapse of the 1930s and find things selling below their working capital per share and so on….  But he was, by and large, operating when the world was in shell shock from the 1930s—which was the worst contraction in the English-speaking world in about 600 years. Wheat in Liverpool, I believe, got down to something like a 600-year low, adjusted for inflation. the classic Ben Graham concept is that gradually the world wised up and those real obvious bargains disappeared. You could run your Geiger counter over the rubble and it wouldn’t click. … Ben Graham followers responded by changing the calibration on their Geiger counters. In effect, they started defining a bargain in a different way. And they kept changing the definition so that they could keep doing what they’d always done. And it still worked pretty well.”

(100)”Warren and I don’t feel like we have any great advantage in the high-tech sector. In fact, we feel like we’re at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies. Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it’s going to be very hard to advance that circle. If I had to make my living as a musician…. I can’t even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization.  So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.  If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.”

(101)”Beta and modern portfolio theory and the like – none of it makes any sense to me.”

(102)”Today, it seems to be regarded as the duty of CEOs to make the stock go up. This leads to all sorts of foolish behavior. We want to tell it like it is.”

(103)”Our standard prescription for the know-nothing investor with a long-term time horizon is a no-load index fund. I think that works better than relying on your stock broker. The people who are telling you to do something else are all being paid by commissions or fees. The result is that while index fund investing is becoming more and more popular, by and large it’s not the individual investors that are doing it. It’s the institutions.”

(104)”closet indexing….you’re paying a manager a fortune and he has 85% of his assets invested parallel to the indexes. If you have such a system, you’re being played for a sucker.”

(105)”Black-Scholes is a know-nothing system. If you know nothing about value — only price — then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it’s crazy to get into Black-Scholes.”

(106)”Black-Scholes works for short-term options, but if it’s a long-term option and you think you know something [about the underlying asset], it’s insane to use Black-Scholes.”

(107)”It’s hard to predict what will happen with two brands in a market.  Sometimes they will behave in a gentlemanly way, and sometimes they’ll pound each other.  I know of no way to predict whether they’ll compete moderately or to the death.  If you could figure it out, you could make a lot of money.”

(108)”We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.”

(109)”A lot of share-buying, not bargain-seeking, is designed to prop stock prices up. Thirty to 40 years ago, it was very profitable to look at companies that were aggressively buying their own shares. They were motivated simply to buy below what it was worth.”

(110)”There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there’s never any cash. It reminds me of the guy who looks at all of his equipment and says, “There’s all of my profit.” We hate that kind of business. “

(111)”There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer. … Disney found that it could raise those prices a lot and the attendance stayed right up.  So a lot of the great record of Eisner and Wells … came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies… At Berkshire Hathaway, Warren and I raised the prices of See’s Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.”

(112)”At Berkshire Hathaway we do not like to compete against Chinese manufacturers.”

(113)”Berkshire is in the business of making easy predictions  If a deal looks too hard, the partners simply shelve it.”

(114)”We’re the tortoise that has outrun the hare because it chose the easy predictions.”

(115)””Warren and I avoid doing anything that someone else at Berkshire can do better. You don’t really have a competency if you don’t know the edge of it.”

(116)”Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things.” 

(117)”Generally speaking, it can’t be good to be running a big current account deficit and a big fiscal deficit and have them both growing. You would be thinking the end there would be a comeuppance.” “[But] it isn’t as though all the other options look wonderful compared to the US. It gives me some feeling that what I regard as fiscal misbehavior on our part could go on some time without paying the price.”

(118)”We started from such a strong position. It’s not as if the alternatives are all so great. I can understand why people would rather invest in the  U.S. Do you want to be in Europe, where 12-13% of people are unemployed and most 28-year-olds are living at home and being paid by state to do it? Or be in Brazil or Venezuela with the political instability that you fear? It’s not totally irrational that  people still like the U.S., despite its faults. Whatever misbehavior there is could go on quite a long time without a price being paid.”

(119)”Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.”

(120)”No CEO examining books today understands what the hell is going on.”

(121)”Generally speaking, if you’re counting on outside directors to act [forcefully to protect your interests as a shareholder, then you’re crazy].  As a general rule in  America, boards act only if there’s been a severe disgrace. My friend Joe was asked to be on the board of Northwestern Bell and he jokes that ‘it was the last thing they ever asked me.’ I think you get better directors when you get directors who don’t need the money.  When it’s half your income and all your retirement, you’re not likely to be very independent.  But when you have money and an existing reputation that you don’t want to lose, then you’ll act more independently.”

(122)”If mutual fund directors are independent, then I’m the lead character in the Bolshoi Ballet.”

(123)”Of course I’m troubled by huge consumer debt levels – we’ve pushed consumer credit very hard in the US.  Eventually, if it keeps growing, it will stop growing. As Herb Stein said, “If something cannot go on forever, it will stop.”  When it stops, it may be unpleasant.  Other than Herb Stein’s quote, I have no comment.”

(124)” I think it would be a great improvement if there were no D&O insurance . The counter-argument is that no-one with any money would serve on a board. But I think net net you’d be better off.”

(125)”We don’t care about quarterly earnings (though obviously we care about how the business is doing over time) and are unwilling to manipulate in any way to make some quarter look better.”

(126)”What we don’t like in modern capitalism is the expectations game. It’s not the kissing cousin of evil; it’s the blood brother.”

(127)”There are a lot of things we pass on. We have three baskets: in, out, and too tough…We have to have a special insight, or we’ll put it in the ‘too tough’ basket. All of you have to look for a special area of competency and focus on that.”

(128)”We have a history when things are really horrible of wading in when no one else will.”

(129)”We have monetized houses in this country in a way that’s never occurred before. Ask Joe how he bought a new Cadillac [and he’ll say] from borrowing on his house. We are awash in capital. [Being] awash is leading to very terrible behavior by credit cards and subprime lenders -a very dirty business, luring people into a disadvantageous position. It’s a new way of getting serfs, and it’s a dirty business. We have financial institutions, including those with big names, extending high-cost credit to the least able people. I find a lot of it revolting. Just because it’s a free market doesn’t mean it’s honorable.”

(130)”We don’t believe that markets are totally efficient and we don’t believe that widespread diversification will yield a good result.  We believe almost all good investments will involve relatively low diversification. Maybe 2% of people will come into our corner of the tent and the rest of the 98% will believe what they’ve been told.”

(131)”Efficient market theory [is]  a wonderful economic doctrine that had a long vogue in spite of the experience of Berkshire Hathaway. In fact one of the economists who won — he shared a Nobel Prize — and as he looked at Berkshire Hathaway year after year, which people would throw in his face as saying maybe the market isn’t quite as efficient as you think, he said, “Well, it’s a two-sigma event.” And then he said we were a three-sigma event. And then he said we were a four-sigma event. And he finally got up to six sigmas — better to add a sigma than change a theory, just because the evidence comes in differently.And, of course, when this share of a Nobel Prize went into money management himself, he sank like a stone.”

(132)”I know just enough about  thermodynamics to understand that if it takes too much fossil-fuel energy to create ethanol, that’s a very stupid way to solve an energy problem.”

(133)”It is entirely possible that you could use our mental models to find good IPOs to buy.  There are countless IPOs every year, and I’m sure that there are a few cinches that you could jump on.  But the average person is going to get creamed.  So if you’re talented, good luck. IPOs are too small for us, or too high tech, so we won’t understand them.  So, if Warren’s looking at them, I don’t know about it.”

(134)”Well envy/jealousy made, what, two out of the ten commandments? Those of you who have raised siblings you know about envy, or tried to run a law firm or investment bank or even a faculty? I’ve heard Warren say a half a dozen times, “It’s not greed that drives the world, but envy.”

(135)”Suppose, any one of you knew of a wonderful thing right now that you were overwhelmingly confident- and correctly so- would produce about 12% per annum compounded as far as you could see. Now, if you actually had that available, and by going into it you were forfeiting all opportunities to make money faster- there’re a lot of you who wouldn’t like that. But a lot of you would think, “What the hell do I care if somebody else makes money faster?” There’s always going to be somebody who is making money faster, running the mile faster or what have you. So in a human sense, once you get something that works fine in your life, the idea of caring terribly that somebody else is making money faster strikes me as insane.”

(136)”People always underestimate the ability of earth to increase its carrying capacity.”

(137)”I think it is roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don’t think it’s totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records. It’s efficient enough, so it’s hard to have a great investment record. But it’s by no means impossible. Nor is it something that only a very few people can do. The top three or four percent of the investment management world will do fine.”

(138)”…in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important. …  In some businesses, the very nature of things is to sort of cascade toward the overwhelming dominance of one firm. And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, “To hell with it. We’re either going to be # 1 or #2 in every field we’re in or we’re going to be out.”

(139)”Obviously, consideration of costs is key, including opportunity costs. Of course capital isn’t free. It’s easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you’re generating a 100% return on capital, then you shouldn’t invest in something that generates an 80% return on capital. It’s crazy.”

(140)”Neither Warren nor I have any record of making large profits from interest rate bets. That being said, all intelligent citizens of this republic think a bit about this. In my lifetime, I’ve seen interest rates range from 1% to 20%. We try to operate so that really extreme interest rates in either direction wouldn’t be too bad for us. When interest rates are in a middle range, as they are now, we’re agnostic.”

(141)”Those who will not face improvements because they are changes, will face changes that are not improvements.”

(142)”One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life – if you don’t need a lot of material goods.”

(143)”I think democracies are prone to inflation because politicians will naturally spend [excessively] – they have the power to print money and will use money to get votes.  If you look at inflation under the Roman Empire, with absolute rulers, they had much greater inflation, so we don’t set the record.  It happens over the long-term under any form of government.”

(144)”I see almost no change in the price of the composite product that flows through Costco  I don’t feel sorry for the people who pay $27 million for an 8,000-square-foot condo in Manhattan. So inflation comes in places.”

(145)”The interesting thing about it to me is the mindset. With all these “helpers”  running around, they talk about doing deals. We talk about welcoming partners. The  guy doing deals, he wants to do a deal and then unwind it in the near future. It’s totally opposite for us. We like to build lasting relationships. I think our system will work  better in the long term than flipping deals. I think there are so many of them [helpers] that they’ll get in each other’s way. I don’t  think they’ll make enough money to meet their expectations, by flipping, flipping, flipping.”

(146)”Warren talked to guy at an investment bank and asked how they made their money. He said, “Off the top, off the bottom, off both sides and in the middle.”

(147)”A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.”

(148)”Kellogg’s and Campbell’s moats have also shrunk due to the increased buying power of supermarkets and companies like Wal-Mart. The muscle power of Wal-Mart and Costco has increased dramatically.”

(149)”There are a lot of things in life way more important than money. All that said, some people do get confused. I play golf with a man who says, ” What good is health? You can’t buy money with it.”

(150)”I live surrounded by Koreans in L.A. I would regard Korean culture and what they’ve created as one of the most remarkable in the history of capitalism. We don’t think it’s an accident that Iscar discovered  Korea. If you try to find 10 countries better than Korea … you won’t get through one hand. We are huge admirers of Korea.”

(151)”It’s natural that you’d have more brains going into money management. There are so many huge incomes in money management and investment banking — it’s like ants to sugar. There are huge incentives for a man to take up money management as opposed to, say, physics, and it’s a lot easier.”

(152)”Ben Graham [had] his concept of “Mr. Market”. Instead of thinking the market was efficient, he treated it as a manic-depressive who comes by every day. And some days he says, “I’ll sell you some of my interest for way less than you think it’s worth.” And other days, “Mr. Market” comes by and says, “I’ll buy your interest at a price that’s way higher than you think it’s worth.” And you get the option of deciding whether you want to buy more, sell part of what you already have or do nothing at all. To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct….”

(153)”Mutual funds charge 2% per year and then brokers switch people between funds, costing another 3-4 percentage points.  The poor guy in the general public is getting a terrible product from the professionals.  I think it’s disgusting.  It’s much better to be part of a system that delivers value to the people who buy the product.  But if it makes money, we tend to do it in this country.”

(154)”It is way less certain to be a wonderful business in the future. The threat is alternative mediums of information. Every newspaper is scrambling to parlay their existing advantage into dominance on the Internet. But it is way less sure [that this will occur] than the certainty 20 years ago that the basic business would grow steadily, so there’s more downside risk. The perfectly fabulous economics of this business could become grievously impaired.”

(155)”If you take the best text in economics by Mankinaw, he says intelligent people make decisions based on opportunity costs — in other words, it’s your alternatives that matter. That’s how we make all of our decisions. The rest of the world has gone off on some kick — there’s even a cost of equity capital. A perfectly amazing mental malfunction. “

(156)”We’ve had the most massive creation of wealth for people a lot younger than those who formerly got wealth in the history of the world. The world is full of young people who really want to get rich, and {when I left school] nobody thought it was a reasonable possibility.”

(157)”I have concluded that most PhD economists under appraise the power of the common-stock-based “wealth effect”, under current extreme conditions.. “wealth effects” involve mathematical  puzzles that are not nearly so well worked out as physics theories and never can be. …what has happened in Japan … has shaken up academic economics, as it obviously should, creating  strong worries about recession from “wealth effects” in reverse.”

(158)”There is this company in an emerging market that was presented to Warren. His response was, ‘I don’t feel more comfortable buying that than I do of adding to Wells Fargo.’ He was using that as his opportunity cost. No one can tell me why I shouldn’t buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better.”

(159)”Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.”

(160)”You know the cliché’ that opposites attract? Well, opposites don’t attract. Psychological experiments prove that’s it’s people who are alike that are attracted to each other. Our minds [his and Buffett’s] work in very much the same way.”

(161)”Don’t confuse correlation and causation. Almost all great records eventually dwindle.”

(162)”…there are some things you should pay up for, like quality businesses and people.”

(163)”I always like it when someone attractive to me agrees with me, so I have fond memories of Phil Fisher.  The idea that it was hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea.  But 98% of the investment world doesn’t think this way. “

(164)”There has never been a master plan.Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality.We want people taking into account new information.”

(165)”Wrigley is a great business, but that doesn’t solve the problem. Buying great businesses at advantageous prices is very tough.”

(166)”The investment game always involves considering both quality and price, and the trick is to get more quality than you pay for in price. It’s just that simple.”

(167)”…by regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level..  I find that what I see going on there pretty much informs me about what’s happening at the macro level.”

(168)”I know a man named John Arriaga. After he graduated from Stanford, he started to develop properties around Stanford. There was no better time to do it then when he did. Rents have gone up and up. Normal developers would borrow and borrow. What John did was gradually pay off his debt, so when the crash came and 3 million of his 15 million square feet of buildings went vacant, he didn’t bat an eyebrow. The man deliberately took risk out of his life, and he was glad not to have leverage. There is a lot to be said that when the world is going crazy, to put yourself in a position where you take risk off the table. We might all consider imitating John.”

(169)”We haven’t pushed it as hard as other people would have pushed it. I don’t want to go back to Go. I’ve been to Go. A lot of our shareholders have a majority of their net worth in Berkshire, and they don’t want to go back to Go either.”

(170)”Size will hurt returns. Look at Berkshire Hathaway – the last five things Warren  has done have generated returns that are splendid by historical standards, but now give him $100 billion in assets and measure outcomes across all of it, it doesn’t look so good. We can only buy big positions, and the only time we can get big positions is during a horrible period of decline or stasis. That really doesn’t happen very often.”

(171)”Soros couldn’t bear to see others make money in the technology sector without him, and he got killed. It doesn’t bother us at all.”

(172)”In Gillette’s case, they keep surfing along new technology which is fairly simple by the standards of microchips. But it’s hard for competitors to do. So they’ve been able to stay constantly near the edge of improvements in shaving.”

(173)”If the technology hadn’t changed, [newspapers would] still be great businesses. Network TV [in its heyday,] anyone could run and do well.”

(174)”The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.  For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles—which are a real commodity product. And one day, the people came to Warren and said, “They’ve invented a new loom that we think will do twice as much work as our old ones.”  And Warren said, “Gee, I hope this doesn’t work because if it does, I’m going to close the mill.” And he meant it.  What was he thinking? He was thinking, “It’s a lousy business. We’re earning substandard returns and keeping it open just to be nice to the elderly workers. But we’re not going to put huge amounts of new capital into a lousy business.”And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.  That’s such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers. Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line. In all cases, the people who sell the machinery—and, by and large, even the internal bureaucrats urging you to buy the equipment—show you projections with the amount you’ll save at current prices with the new technology. However, they don’t do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I’ve never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years.”  So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you’ve earned a return of only about 4% per annum. That’s the textile business. And it isn’t that the machines weren’t better. It’s just that the savings didn’t go to you.  The cost reductions came through all right. But the benefit of the cost reductions didn’t go to the guy who bought the equipment. It’s such a simple idea. It’s so basic. And yet it’s so often forgotten.  Then there’s another model from microeconomics which I find very interesting. When technology moves as fast as it does in a civilization like ours, you get a phenomenon which I call competitive destruction. You know, you have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you’re dead—you’re destroyed. It happens again and again and again.  And when these new businesses come in, there are huge advantages for the early birds. And when you’re an early bird, there’s a model that I call “surfing”—when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows…”

(175)”It’s hard to believe that he’s getting better with each passing year. It won’t go on forever, but Warren is actually improving. It’s remarkable: Most almost-72-year-old men are not improving, but Warren is.”

(176)”Civilized people don’t buy gold. They invest in productive businesses.”