The Snowball: Warren Buffett and the Business of Life

Snowball Book Cover

Valuing is not the same as predicting.

In the short run, the market is a voting machine. In the long run, it’s a weighing machine.

p. 15

the value of the stock market could only reflect the output of the economy.

p. 19

Both regarded rationality and honesty as the highest virtues. Quickened pulses and self-delusion, in their view, were the major causes of mistakes. They liked to ponder the reasons for failure as a way of deducing the rules of success.”I had long looked for insight by inversion, in the intense manner counseled by the great algebraist Carl Jacobi,” Munger said.” ‘Invert, always invert’ “.

[…]

“Tell me where I’m going to die so I won’t go there.”

p. 23 Talking about Charlie Munger

Circle of Competence [..] money, business and his own life.

p. 24

the market’s weighing machine was more important than it’s voting machine.

p. 30

The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard. I always pose it this way. I say: ‘Lookit. Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?’ Now, that’s an interesting question.

“Here’s another one. If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?

“In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard. Now, my dad: He was a hundred percent Inner Scorecard guy.

“He was really a maverick. But he wasn’t a maverick for the sake of being a maverick. He didn’t care what other people thought. My dad taught me how life should be lived. I’ve never seen anybody quite like him.”

p. 32

He was learning to calculate odds. […] The key was to collect information, as much information as you could find.

p. 48

It might seem easier to go through life as the echo-but only until the other guy plays a wrong note.

p. 54

Making a sale was tempting, but not tempting enough to change his mind.

p.55

It emblemized the part of selling that Warren most enjoyed: collecting.

p. 56

walnut-paneled office

p. 58

he saw what hiring a man for such a frivolous purpose implied.

p. 59

“Opportunity Knocks,” […] “Never in the history of the United States has the time been so favorable for a man with small capital to start his own business as it is today.”

p. 60

The more money he collected early on, the longer the money could compound, and the better his chances of achieving his goal.

p. 61

One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit.

p. 61

third lesson, […] he didn’t want to have responsibility for anyone else’s money unless he was sure he could succeed.

p. 61

“Why would anybody want to read Gone With the Wind when they could be reading How to Run a Grocery Store and a Few Things I Learned About Fishing?”

p. 70-71

At age fourteen, he had now fulfilled the promise laid out in his favorite book, One Thousand Ways to Make $1,000. His savings now totaled around a thousand dollars. He took great pride in that accomplishment. So far, he was ahead of the game, way ahead of the game, and getting ahead of the game, he knew, was the way to his goal.

p. 79

All of the Buffetts admired Howard’s fortitude and credit their father for teaching them integrity.

p. 84

“If you want to gather honey,” it began, “don’t kick over the beehive.”

[…]

Rule number one: Don’t criticize, condemn, or complain.

[…]

“People don’t want criticism. They want honest and sincere appreciation.”

[…]

The deepest urge in human nature is “the desire to be important.”

p. 90

Everybody wants attention and admiration. Nobody wants to be criticized.
The sweetest sound in the English language is the sound of a person’s own name.
The only way to get the best of an argument is to avoid it.
If you are wrong, admit it quickly and emphatically.
Ask questions instead of giving direct orders.
Give the other person a fine reputation to live up to.
Call attention to people’s mistakes indirectly. Let the other person save face.

p. 91

But it did you no good to read about the rules. You had to live them. I am talking about a new way of life, said Carnegie.

p. 91

Warren had discovered the miracle of capital: money that works for its owner, as if it had a job of its own.

p. 93

The key was having more information than the other guy – and then analyzing it right and using it rationally.

p. 97

There are two kind of handicappers. There are speed handicappers and class handicappers. Speed handicappers figure out the horse with the best times in the past. The fastest horse will win. Class handicappers feel that the horse that’s run against ten-thousand-dollar horses and done well and now is running against the five-thousand-dollar horses will beat them. Because, they say, the horse runs just fast enough to win.

“In horse racing it pays to understand both types of handicapping. But back then I was basically a speed guy. I was a quantitative guy to start with.”

As he tested, thought, and observed, Warren discovered the Rules of the Racetrack:

1. Nobody ever goes home after the first race.

2. You don’t have to make it back the way you lost it.

The racetrack counts on people to keep betting until they lose. Couldn’t a good handicapper turn these rules around and win?

“The market is a racetrack too. But I was not developing elaborate theories in those days. I was just a little kid.”

p. 99

Then one time, Warren went to Charles Town by himself. And he lost in the first race. But he didn’t go home. He kept on betting and he kept on losing, until he had lost more than $175 and his pockets were stripped nearly bare.

[…]

You’re not supposed to bet every race. I’d committed the worst sin, which is that you get behind and you think you’ve got to break even that day. The first rule is that nobody goes home after the first race, and the second rule is that you don’t have to make it back the way you lost it. That is so fundamental, you know.

Did he realize that he’d made an emotional decision?

Oh yeah. Oh, I was sick. It was the last time I ever did anything like that.

p. 101

But Warren, a one-man bandwagon, wanted someone to whom he could talk about his businesses

p. 107

Indeed, Warren was a master at using what he had efficiently, his own time especially.

p. 108

Investing, he said, should be systematic.

[…]

For years, he had, been going downtown to the library and checking out every book available on stocks and investing. Many of the books dealt with stock-picking systems based on models and patterns; Warren wanted a system, something that would work reliably. He had been fascinated by numerical patterns-technical analysis.

p. 116

Warren thought of all businesses this way. The employees who managed the business shared in the earnings that their labors produced. But they were accountable to their owners, and it was the owners who got the gains as the value of the business increased.

p. 120

“Warren, think for yourself.”

p. 122

How do companies make money? A company was much like a person. It had to go out and find a way to keep a roof over its employees’ and shareholders’ heads.

p. 124

insurance companies take their customers’ premiums and invest them long before the claims are paid. That sounded to him like getting to use somebody else’s money for free

p. 125

other people’s behavior never seemed to disturb Graham’s equanimity.

p. 128

Graham said, eventually-a tricky word, “eventually”-the stock’s price would rise to reflect this intrinsic value.

[…]

Complicating matters was the word “eventually.” […] Even if an analyst figured everything right, he could still appear wrong in the eyes of the market for the investing equivalent of a lifetime. You had to build in what Graham and Dodd called a MARGIN OF SAFERY-that is, plenty of room for error.

p. 132

+ A stock is the right to own a little piece of a business. A stock is worth a certain fraction of what you would be willing to pay for the whole business.

+ Use a margin of safety. Investing is built on estimates and uncertainty. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors. The way to advance, above all, is by not retreating.

+ Mr. Market is your servant, not your master. Graham postulated a moody character called Mr. Market, who offers to buy and sell stocks every day, often at prices that don’t make sense. Mr. Market’s moods should not influence your views of price. However, from time to time he does offer the chance to buy low and sell high.

[…]

Of these points, the margin of safety was most important.

p. 133

“I would get these papers from 1929. I couldn’t get enough of it. I read everything – not just the business and stock-market stories. History is interesting, and there is something about history in a newspaper, just seeing a place, the stories, even the ads, everything. It takes you into a different world, told by somebody who was an eyewitness, and you are really living in that time.”

p. 134

Dr. Norman Vincent Peale

p. 137

“I learned that it pays to hang around with people better than you are, because you will float upward a little bit. And if you hang around with people that behave worse than you, pretty soon you’ll start sliding down the pole. It just works that way”

p.142

“I went through the Moody’s Manuals page by page. Ten thousand pages in the Moody’s Industrial, Transportation, Banks and Finance Manuals – twice. I actually looked at every business – although I didn’t look very hard at some.”

p. 149

That’s when I learned the power of customer loyalty

p. 151

Now Howard’s struggles branded three principle even deeper into his son: that allies are essential; that commitments are so sacred that by nature they should be rare; and that grandstanding rarely gets anything done.

p. 160

“I needed her like crazy” […] “I was happy in my work, but I wasn’t happy with myself. She literally saved my life. She resurrected me.”

she willingly became the cocoon for his embryonic ambitions. […] He also arranged his schedule to give himself leisure time to play golf and Ping-Pong

p. 161

“cigar butts”

[…]

Graham specialized in spotting these unappetizing remnants that everyone else overlooked.

p. 165

The law of averages. […] how much companies would be worth dead

[…]

Once Warren had looked over the field, he narrowed it down to a handful of stocks worth even more careful study, then concentrated his money on what he considered the best bets.

[…]

Every decision had an opportunity cost

p. 166

the art of capital allocation – placing money where it would earn the highest return.

p. 167

‘Remember one thing Warren: Money isn’t making that much difference in how you and I live. We’re both going down to the cafeteria for lunch and working every day and having a good time. So don’t worry too much about money, because it won’t make much difference in how you live.’

p. 167 Graham to Warren

When he wasn’t studying something, he was teaching it.

p. 168

She knew how to get people to open up to her.

[…]

People loved her for being so interested in them.

p.168 referring to Warren’s wife Susie

Agnostic

p. 169 referring to Warren’s religion

“In Wall Street the old proverb has been reworded,” […] “Give a man a fish and you feed him for a day. Teach him to arbitrage and you feed him forever.”

p. 171

His only constraints were the money, energy, and time he had available.

p. 173

Doubling your money and then some for a few weeks’ work was spectacular. And yet, what was more important to him was doing it without taking any significant risk.

p.174

the first thing he had done when he returned to Omaha, besides forming a partnership, was to take on two classes for the fall semester at the University of Omaha: Investment Analysis for Men Only and Inteligent Investing. […] he would add a third course, Investing for Women.

[…]

Despite his brilliance, Warren was still very immature.

[…]

All Warren’s recreation remained repetitive, competitive, or, better yet, both.

p.183

think of his memory as functioning like a bathtub.

[…]

Painful memories were the first to be flushed. The bathtub memory’s efficiency freed up enormous amounts of space for the new and the productive. Buffett thought of the bathtub memory as a helper that allowed him to “look forward,” rather than “looking backward” all the time like his mother. And it allowed him, at the age of twenty-six, to ruminate in depth on business to the exclusion of almost everything else – in pursuit of his goal of becoming a millionaire.

The fastest way to that goal was to raise more money to manage.

p. 185

He had learned the value of gathering as much as possible of something scarce.

p. 189

Warren could never get enough cash. But the Graham connection was about to pay off again.

p. 195

Robinson Crusoe […] conquest of nature through discipline.

p. 198

He said he learned to fold fast when the odds were bad and bet heavily when they were good, lessons he would use to advantage later in life.

p. 199

When things went wrong, Munger would set out toward new goals rather then let himself dwell on the negative. […] keeping the horizon in sight. “You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will,”

p. 200

authentic achievement

p. 201

to get more money, to make more money, drove him on.

p. 209

people felt indebted to him for taking their money. Making people ask put him psychologically in charge.

p. 210

And he accomplished this higher return while taking less risk than the market as a whole.

p. 210

“Be fearful when others are greedy, and greedy when others are fearful.”

p. 212

he wanted to hear about the intangibles: the strength of its management, the durability of its brand, how someone else could compete with it.

p. 221

“What’s the best business you’ve ever heard of”

p. 222

Buffett would forgo the chance of profits any day to avoid too much risk, and viewed preserving his capital as an almost holy imperative. Munger had the attitude that if you weren’t already rich, you could afford to take some risk – if the odds were right – to get rich.

p. 222

Munger wanted Buffett to define the margin of safety in other than purely statistical terms.

p. 223

“‘Warren, if you’re looking for a gold needle in a haystack of gold, it’s not better to find the gold needle.’ I had this thing that the more obscure something was, the better I liked it. I thought it was a treasure hunt. Herb got me out of that way of thinking.”

p. 223 talking about Herb Wolf of New York Hanseatic

factors like the ability to maintain sales growth, good management, and research and development characterized a good investment. These were the qualities that Munger was searching for in the great business.

p. 224

Warren had strong views about specialization; he defined his special skills as thinking and making money.

p. 245

Money was important. […] it was routinely used as a tool of control.

p. 247

Bufett knew he wanted to be in business with the kind of guy who would leave a black-tie party to count sheets of toilet paper;

p. 255

“Intensity is the price of excellence.”

p. 255

“There’s no such thing as a bad risk,” Ringwalt like to say, “only bad rates.”

p. 261

Like Buffett, he had an overarching hatred of hierarchy and a love for the underdog.

p. 268

one compromise he would never make was to give up his margin of safety. This particular quality – to pass up possible riches if he couldn’t limit his risk – was what made him Warren Buffett.

p. 277

ethical entrepreneurs often cared more about how they and the companies they had built were going to be treated by the new owners than about grabbing the last nickel in a sale.

p. 280

“There is no way to eliminate the possibility of error when judging humans…”

p. 286

Buffett posed the Desert Island Challenge. If you were stranded on a desert island for ten years, he asked, in what stock would you invest? The trick was to find the company least subject to the corroding forces of competition and time: Munger’s idea of the great business.

p. 287

Time is the friend of the wonderful business, the enemy of the mediocre …. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

p. 289

the money was just his scorecard.

p. 290

He often said that he tried to treat his partners the way he would his family.

p. 299

Buffett’s management style […] “He’d always praise you while he gave you more to do.”

p. 302

“Her skill,” […] “was to raise the bar, gently but relentlessly.”

p. 322 referring to Kay Graham

“the Picasso of banking”

p. 323 referring to André Meyer also called the greatest investment banker of the twentieth century

Graham used the dinners as a way of making new friends and as a way of getting people to know one another.

p. 329

it was extremely profitable because it kept its costs so low.

p. 333

Malott jumped at the opportunity anyway; not mistaking the larger point: That Bufett was willing to do it at all meant that he would do it well.

p. 337

He was very, very rich but cash-poor.

p. 339

Buffett taught the Grahams the immense value of buying their company’s own stock when it was cheap to reduce the shares outstanding. That increased the size of each slice of the pie.

p. 361

Many longtime shareholders had panicked and talked themselves into selling, which is how the stock got to $2 in the first place.

p. 368 referring to the GEICO stock

a stock that had sunk so low was too cheap to sell.

p. 369

He had a way of making people feel tah-riffic about the place where they went to work every morning, despite the career-threatening status of their employer.

p. 372 referring to Jack Byrne

‘Mr. Buffett, the first thing you should understand is, nobody likes to be criticized.’

p. 376

What he meant by ‘Essentiality’ was that, even during the Depression, he saw the Racing Form being sold for two and a half bucks down in Cuba.

p. 376 Buffett referring to what Walter Annenberg who owned the Daily Racing Form had told him

stocks of companies that can raise prices as their costs increase, are the best protection against inflation

p. 384

“The future is never clear” […] Uncertainty actually is the friend of the buyer of long-term values.

p. 400

Capital took the risk and reaped the rewards.

p. 402

The great engine of compounding worked as a servant on his behalf

[…]

Estimate an investment’s intrinsic value, handicap its risk, buy using a margin of safety, concentrate, stay in the circle of competence, let it roll as compounding did the work. […] even though Buffett made the process look effortless, the technique and discipline underlying it involved an enormous amount of work

p. 407-408

We run the business to achieve the best long-term results.

p. 410

Kiewit had lived in a penthouse apartment in Kiewit Plaza, where Berkshire was headquartered, and he commuted to work by elevator.

[…]

Kiewit was able to transmit, throughout an organization of thousands of employees, an unremitting insistence on excellence and efficiency.

“Kiewit was overwhelmingly a producer, not a consumer,” […] “Profits went to build the capacity of the organization, not to provide opulence to the owner.”

“In essence, one who spends less than he earns is accumulating ‘claim checks’ for future use”

p. 414

If I did it for you, I would have to do it for everybody.

p. 416

“It’s better to have them hate you than to feel sorry for you”

p. 420 Rose Gorelick Blumkin

“Everything Mrs. B knew how to do, she would do fast. She didn’t hesitate and there was no second-guessing.”

p. 422 referring to Mrs. Blumkin

“Warren doesn’t have stress, he causes it.” Dale Carnegie said to give people a fine reputation to live up to, and Buffett had learned that lesson well.

[…]

You’re so good, this won’t take you any time at all, and it won’t cost anything to do. […] Because you’re just so damn great at what you do. It would take three people to replace you.

p. 425

the bathtub memory went to work

p. 431

in a business where fraud prevention is more important than sales.

p. 433

The meetings carried on like this for years, with only a sprinkling of people showing up to ask questions […] As recently as 1981, only twenty-two people attended

[…]

Buffett spoke in metaphors the audience understood

[…]

In 1986 […] Four Hundred people came, then five hundred the next year.

p. 444

Yet the proponents of EMH denied all exceptions, and to them Buffett – the most visible exception of all – and his lengthening and increasingly acclaimed record became an inconvenient fact.

p. 445

It was what he did with the information the Wall Street Journal gave him, however, that made him a superior investor. If a monkey got the Wall Street Journal in its driveway every night just before midnight, the monkey still could not match Buffett’s investing record by throwing darts.

p. 445-446

if all the coin-flippers who kept slipping heads came from the tiny village of Graham-and-Doddsville, something specific that they were doing must be making those coins flip heads.

p. 446

Leverage, however, was like gasoline. In a rising market, a car used more of it to go faster. In a crash, it was what made the car blow up.

p. 447

Buffett and Munger defined risk as not losing money. To them, risk was “inextricably bound up in your time horizon for holding an asset.” Someone who can hold an asset for years can afford to ignore its volatility.

p. 447

When enough time passes and nothing bad happens, people who are making a lot of money tend to think it is because they are smart, not because they are taking a lot of risk.

p .448

with the market crashing around their ears, for three days Bufett and the others glowed like fireflies, checking stock prices and phoning their traders with controlled excitement.

p. 460

I wanted the kind of person who was going to be able to make decisions as to what should get to me and what could get solved below the line – who would tell me all the bad news, because good news always takes care of itself in business.

p. 492 referring to what he looked for in the next CEO of Salomon

He didn’t think Bufett’s arguments were any good. But he heard the feelings behind the words.

p. 499

But Buffett thought in probabilities; he extrapolated right away to whether a catastrophic outcome was possible – then worked out very fast what it would take to get to the lowest probability of catastrophe. Here, it was firing Mozer and confessing right away. Buffett also thought in black-and-white terms about honesty; he had no tolerance for liars and cheaters. So that was that.

p. 506

“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless”

p. 509

He wanted to run things by what he called the “front-page test.”

I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter.

p. 510

Then at dinner, Bill Gates Sr. posed the question to the table: What factor did people feel was the most important in getting to where they’d gotten in life? And I said, ‘Focus.’ And Bill said the same thing.

[…]

It meant single-minded obsession with an ideal.

p. 523

If you were Sears in 1960, why couldn’t you keep getting the smartest employees and selling at the best prices? What was it you couldn’t see that prevented you from remaining the leader? Most of the proposed answers, regardless of the company, revolved around arrogance, complacency, and what Buffett called the “Institutional Imperative”- the tendency for companies to engage in activity for its own sake and to copy their peers instead of trying to stay ahead of them. Some companies didn’t bring in young people with fresh ideas. Sometimes management weren’t attuned to tectonic shifts in their industry.

p. 524

Munger often attributed much of Buffett’s success to the fact that he was a “learning machine.”

[…]

It was the way Buffett had learned to think in models that impressed Gates most.

p. 529

If there’s a ten percent probability that something will happen in a year, there’s a 99.5 percent probability that it will happen in fifty years. But if you can get that probability down to three percent, that reduces the probability to only seventy-eight percent in fifty years. And if you can get it down to one percent, there is only a forty percent probability in fifty years.

p. 534-535

the easy trades had become scarcer. In response, the arbs took larger positions with more risk, often using debt to finance their bets.

The rules of the racetrack said not to do so. The reason is the math of losing money, which works like this: If someone has a dollar and she loses fifty cents, she has to double her money to make back what she’s lost. That’s difficult to do. It is tempting to borrow another fifty cents for the next bet. That way you only have to make fifty percent (plus the interest you owe on the loan) to get back whole – much easier to do. But borrowing the money doubles your risk. If you lose fifty percent again, you’re history. The loss has wiped out all your capital. Hence Buffett’s saying: Rules number one, don’t lose money. Rule number two, don’t forget rule number one. Rule number three, don’t go into debt.

p. 543

its strategy of eking out teensy profits on a zillion trades was like “picking up nickels in front of a bulldozer.” Now – surprise – the bulldozer turned out to have a Ferrari engine, and it was racing toward them at eighty miles an hour.

p. 546-547

the fund had lost $1.9 billion – almost half of its capital – through a historically unusual combination of stock-market declines and almost hysterical aversion to risk in the bond markets.

p. 547

blinded the partners to the reality

p. 548

if you kept betting and betting, the risk kept stacking up and multiplying. If you kept betting long enough, sooner or later, as long as a zero was not impossible, someday a zero was one hundred percent certain to show up. Long-Term, however, had not even tried to estimate the risk of a loss greater than twenty percent – much less zero.

p. 548

Maybe models didn’t work when the world went mad. […] After all, if you were going to bet by a hundred billion or more in favor of risk, you needed a partner, even a parent, one with so much capital that it essentially undid the leverage, somebody to provide a big umbrella in a storm.

p. 552

When it came to business, Buffett’s veins were filled with ice, but plenty of other people’s pulsed with adrenaline.

p. 553

“we wanted to buy Gen Re, but coming with Gen Re was $22 billion of investment.” […] Adding $22 billion of bonds, “changed the bond/stock ratio at Berkshire, which I was not unhappy with. It did have the effect of a portfolio allocation change.”

p. 561

the margin of safety, the circle of competence, Mr. Market’s vagaries.

p. 565

You can’t do well in investing unless you think independently. And the truth is, you are neither right nor wrong because people agree with you. You’re right because your facts are reasoning are right. In then end , that’s what counts.

[…]

Sooner or later he would have a bad year or the momentum would slow down. He knew that; over and over he had warned investors that trees don’t grow to the sky.

p. 566

“It’s what you do right now, today, that determines how your mind and body will operate ten, twenty, and thirty years from now.”

p. 572

Buffett always liked to talk about how he would rather step over one-foot bars than look for seven-foot bars to hurdle.

p. 573

He answered it himself, as usual, lighting up with a big grinning “Oh, hiiiiii!” to show he was happy to hear from the caller.

p. 574

“I don’t know what that world will look like ten years from now. And I don’t want to play in a game where the other guy has an advantage.”

p. 575

Buffett, however, was skilled at paying people with more praise than cash.

p. 578

mistakes of omission

[…]

mistakes of omission instead of commission

p. 586

“You’d get very rich […] if you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You’d resist the temptation to dabble. You’d make more good decisions and you’d make more big decision.”

p. 586-587

poise and equanimity in the face of disaster as essential

p. 590

“Cash combined with courage in a crisis is priceless”

p. 592

“The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine, […] So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital – twenty million – ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that… we can move that money around from those businesses to buy more businesses.”

p. 608

be willing to sit behind a desk reading financial reports all day long, yet excel at dealing with people

p. 609

You can always tell them to go to hell tomorrow, as Murphy said. There was never any need to do it today. Over the years he had saved himself a lot of trouble by following this advice.

p. 611

Buffett’s real brilliance was not just to spot bargains but in having created, over many years, a company that made bargains out of fairly priced businesses.

p. 613

the best investment they could make in life was in themselves.

p. 620

“Invert, always invert.” Turn the situation or problem upside down. Look at it backward. What’s in it for the other guy? What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead – through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die, that is, so I don’t go there.

p. 627

be plainspoken with shareholders in annual reports, to pay employees in alignment with shareholders

p. 631

“If you go from first floor to the hundredth floor of a building and then go back to the ninety-eighth, you’ll feel worse than if you’ve just gone from the first to the second, you know. But you’ve got to fight that feeling, because you’re still on the ninety-eighth floor.

p. 631

Our capital is underutilized now, he said. It’s a painful condition to be in, but not as painful as doing something stupid.

p. 643

every life has equal value

p. 665

Buffett’s long-used technique of criticizing by withholding attention worked as well on activists as it did on everyone else.

p. 668

“anticipate things that have never happened.”

p. 669

by assessing probabilities – and concluded that he liked the price compared to the risk Berkshire was taking.

p. 679

“when in doubt keep holding” […] “I’ve made most of my money sitting on my ass.” He never sold failing businesses unless their economics turned from simply bad to parasitic, for personal reasons: He liked the people, the managers, the business, the simplicity of fewer decisions, and the reputation for loyalty.

[…]

during his early, hungry years, he had not hesitate to sell one stock for another when a better opportunity came along.

p. 680

In essence, consumer debt had inflated the economy beyond its real size. This economic “growth” was simply borrowed from the future, and would have to be paid back with interest.

p. 681

“You always want to have plenty of money around.”

p. 684

There are always people who say that the rules have changed. But it only looks that way, he said, if the time horizon is too short.

p. 685

“Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market.”

p. 685-686

the Shoe Button Complex

p. 696

he only sold when a company’s competitive advantage disappeared, he lost faith in management, or he needed cash.

p. 699

the “unleashed potential” of all human race that caused economies to grow over time, he said; in other words, productivity. The world’s system to increase productivity works naturally and has been working for a long time.

p. 701

“I packed my little snowball very early, and if I had packed it ten years later, it would have been way different than where it stands on the hill right now. So I recommend to students that if you start out a little ahead of the game – it doesn’t have to be a lot, but it’s so much better than starting out behind the game. And credit cards really get you behind the game.”

p. 702

How do I know what is right? Follow your Inner Scorecard.

p. 703

He ruled out paying attention to almost anything but business […] so that he could focus on his passion. He defined a circle of competence to avoid making mistakes. […] He never stopped thinking about business: what made a good business, what made a bad business, how they competed, what made customers loyal to one versus another. He had an unusual way of turning problems around in his head, which gave him insights nobody else had.

p. 705

“The snowball just happens if you’re in the right kind of snow, and that’s what happened with me.I don’t just mean compounding money either. It’s in terms of understanding the world and what kind of friends you accumulate. You get to select over time, and you’ve got to be the kind of person that the snow wants to attach itself to . You’ve got to be your own wet snow, in effect. You’d better be picking up snow as you go along, because you’re not going to be getting back up to the top of the hill again. That’s the way life works.”

p. 707
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