The following is sort of a guidebook to how I approach investing and life in general, based on what I have learned personally and vicariously from various influences.
- I believe in the principle of cumulative advantage – both knowledge and wealth compound over time, and both become easier to accumulate once you have a base in place.
- I do not seek wealth for the purpose of opulent living, I am quite satisfied with a comfortable, normal existence. However as Charlie Munger puts it – “Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.”
- Being wrong occasionally is fine. Staying wrong by refusing to change your mind or accept new information that clashes with your preconceived notions or worldview is irrational. Sometimes you have to blow up your best loved ideas. “Not drifting into extreme ideology is a very, very important thing in life” as Charlie Munger said. I believe in science and reason, not faith and superstition. A hypothesis or theory must be backed up by evidence.
- I abhor debt because I dislike the feeling of being indebted to anyone.
- Knowing what you don’t know is more important than knowing what you do. After establishing the boundaries of my circle of competence, I seek to constantly expand them. I have a relentless drive for self improvement, and I consider my true competition to be the person I was a year ago. That is my benchmark to beat.
- Intelligent investing involves asymmetric bets – “Heads I win, tails I don’t lose very much” as Mohnish Pabrai says. That said, controlling the downside is more important than calculating the upside. Trying to figure out what can go wrong and whether there is any risk of permanent loss of capital is important. I am convinced that everything that is important in investing is counter-intuitive and everything that is obvious is wrong (Howard Marks)
- The less prudence with which others conduct their affairs, the more prudence with which we should conduct ours. (Warren Buffett). This means being careful of times when the collective crowd is excessively euphoric. Social proof can be a powerful force, but it is necessary to resist it to be rational.
- Most great investments begin in discomfort – the things people are pessimistic about, are controversial and have been performing bad of late. Sometimes you have to dare to look wrong (Howard marks)
- The market can remain irrational longer than you can remain solvent (John Maynard Keynes). This is what makes buying on borrowed funds so dangerous – it is like driving in a car with a broken airbag – it works till you crash.
- My largest positions aren’t the ones I think I’m going to make the most money from. My largest positions are the ones where I don’t think I’m going to lose money (Joel Greenblatt)
- Better approximately right than exactly wrong (John Maynard Keynes). One of the greatest dangers someone from a mathematical or engineering background faces when approaching fields like economics or investment is trying to seek false precision through the use of complex models, mathematics or statistics. Charlie Munger sometimes calls it “Physics envy”.