Sunday, January 11, 2015

Some of the interesting quotes(From the Book "The Dhandho Investor"

  1. Mistakes are the best teachers. One does not learn from success.
  2. It's easier to learn the lessons when you don't take the hits in your own portfolio. But when you take the hits in your own portfolio, those lessons stay with you for a long time.
  3. Life is a journey and the journey is the destination.
  4. Heads I win; Tails, I don't lose much.
  5. Minimizing downside risk while maximizing the upside is a powerful concept.
  6. Take advantage of Wall Street's handicap by seeking out low-risk, high-uncertainty bets.
  7. Rapidly changing industries are the enemy of the investor.
  8. Margin of Safety – Always!
  9. Fear and greed are very much fundamental to the human psyche.
  10. Buffett's rule number one and rule number two are worth keeping front and center at all times. [Rule number 1: Don't lose money. Rule number 2: don't forget rule number one.]
  11. Investors always overshoot and undershoot.
  12. There is no such thing as a value trap. There are investing mistakes.
  13. You make money by waiting.
  14. The biggest, the single biggest advantage a value investor has is not IQ. It's patience and waiting. Waiting for the right pitch and waiting many years for the right pitch.
  15. I would say, the crossover between entrepreneurship in investing and value investing especially is to protect your downside.
  16. I think the thing is that every business ought to figure out who their ideal customer is.
  17. What is business if not an endeavour to create wealth?
  18. We have all been taught that earning high rates of return requires taking on greater risks. But if an investor can make virtually risk-free bets with outsized rewards, and keep making the bets over and over, the results are stunning.
  19. If you went to a horse race track and you were offered 90% odds of a 20 times return and a 10% chance of losing your money, would you take that bet? Heck Yes! You'd make that bet all day long, and it would make sense to bet a very large portion of your net worth with those spectacular odds. This is not a risk-free bet, but it is a very low-risk, high-return bet. Heads, I win; Tails, I don't lose much!
  20. [On a successful motel investing strategy] The formula is simple: fixate on keeping costs as low as possible, charge lower rates than all competitors, drive up the occupancy, and maximize the free cash flow.
  21. It's all about 'Few Bets, Big Bets, Infrequent Bets.' And it's all about only participating in coin tosses where 'Heads, I win; tails, I don't lose much!'
  22. [On Virgin Atlantic] if you can start a business that requires a $200 million 747 jumbo jet and a boatload of employees in a tightly regulated industry for virtually no capital, then virtually any business that you want to start can be gotten off the ground with minimal capital. All you need to do is replace capital with creative thinking and solutions.
  23. We begin by eliminating all businesses that are either not simple businesses or fall squarely outside our circle of competence.
  24. Capitalism is greed driven… Capitalists strive hard to capitalize on any opportunity to make outsize profits. The irony is that, in that pursuit, they usually destroy all outsized profits.
  25. Anytime we are trying to compute odds for the way the future of a given business is likely to unfold, it is, at best, an approximation. We try to adjust for this by ascribing conservative odds.
  26. Investing is just like gambling. It's all about odds.
  27. Looking out for mispriced betting opportunities and betting heavily when the odds are overwhelmingly in your favor is the ticket to wealth.
  28. Arbitrage is a powerful construct and a fundamental tool in the arsenal of any value investor. With arbitrage, we get decent returns with virtually no risk.
  29. Sniffing out an available arbitrage opportunity is what prompts entrepreneurs to embark on journeys that have lead to the creation of compelling businesses.
  30. Most of the top-ranked business schools around the world do not understand the fundamentals of margin of safety.
  31. Most of the time, assets trade hands at or above their intrinsic value. The key, however, is to wait patiently for that super-fast pitch down the center.
  32. It is during the times of extreme distress and pessimism that rationality goes out the window and prices of certain assets go well below their underlying intrinsic value. Extreme distress can be caused by macro-events like 9/11 or the Cuban missile crisis. Or they can be company specific.
  33. We cannot predict which asset classes are likely to get distressed next. However, if we only focus on a single asset class of stocks, that encompasses thousands of businesses.
  34. Wall Street could not distinguish between risk and uncertainty, and it got confused between the two. Savvy investors like Warren Buffett and Benjamin Graham have been taking advantage of Mr. Market's handicap for decades with spectacular results.
  35. For me, any sort of tech investment is a very fast five-second pass as they tend to be unpredictable, rapidly changing businesses.
  36. The durability of technology moats is many times an oxymoron.
  37. I always enjoy reverse engineering Warren Buffett's investments.
  38. Invest in Businesses with Durable Moats. As my mom always said, 'Time is the best healer!'
  39. I am very reticent to take permanent losses of capital. Buffett's rule number one and rule number two are worth keeping front and center at all times.
  40. I am not Warren Buffett, I don't have a 300 IQ.
  41. Unlike brain surgery, in investing you can be wrong 40% of the time and still do fine.
  42. Buffett says, 'I am a better investor because I am a businessman and I am a better businessman because I am a better investor.' You need the same skills in investing as when you are an entrepreneur.
  43. The good news in investing is there are no HR problems. If there are no humans, there are no problems!
  44. All industries work with change but you should ideally be investing in businesses with a low rate of change, not a high rate of change.
  45. I was lucky that my father ran a whole bunch of businesses, started, grew and bankrupted them. Many of these businesses were very highly leveraged. My father was always optimistic and he was maximizing leverage on the business. But they would blow up because there was no stability in them.
  46. It is desirable to learn vicariously from other people's failures, but it gets much more firmly seared in when they are your own.
  47. Traditional airlines are a losing proposition because of various structural issues — your pricing is set by your dumbest competitor, your costs are subject to a duopoly of airplane manufacturers, a duopoly of engine manufacturers, and a duopoly of maintenance guys and all of them can get whatever they want from you. On top of it, your entire workforce is unionised on every front. You don't have any leeway to control cost.
  48. I am not bouncing up and down with stock prices. I don't even know what the markets or my stock did today. All of that is just irrelevant.
  49. John Templeton used to say that there is no investment manager who is going to be right more than two times out of three.
  50. You are always better off buying a business that has a lot of future growth in it because you can hold it for a long time.
  51. We like to hold cash so we do not miss out on any long-term opportunities.
  52. Buffett says if he could forecast Google's revenues and cash flows at a particular price, he will consider buying it. His problem is that he can't forecast the revenues and cash flows.
  53. We will never have another Warren. I think Warren is a very unique person.
  54. I believe the best things about Warren have nothing to do with investing. I think, most of the great things I've taken from Warren have more to do with life than investing.
  55. Warren pays attention to intangibles, but Ben Graham was very much a tangible guy.
  56. When you look at a business, look at it in a broader context of how it fits into the world. And sometimes, if you can see it in a light that the world is not seeing it in, that can give you an edge.
  57. [On Charlie Munger saying 'you have 3 choices, yes, no or too difficult.] That's right. And 98% is too difficult.
  58. What you want is a business that has a deep moat with lots of piranha in it and that's getting deeper by the day. That's a great business.
  59. Charlie Munger likes to say that you don't make money when you buy stocks. And you don't make money when you sell stocks. You make money by waiting.
  60. All investment managers' miseries stem from the inability to sit alone in a room and do nothing.
  61. I think that the way the investment business is set up, it's actually set up the wrong way. The correct way to set it up is to have gentlemen of leisure, who go about their leisurely tasks, and when the world is severely fearful is when they put their leisurely task aside and go to work. That would be the ideal way to set up the investment business.
  62. People think that entrepreneurs take risk. And they get rewarded because they take risk. In reality, entrepreneurs do everything they can to minimize risk. They are not interested in taking risk. They want free lunches and they go after free lunches.
  63. Entrepreneurs are great at dealing with uncertainty and also very good at minimizing risk. That's the classic great entrepreneur.
  64. My experiences as a businessman have very direct, long-term positive impacts on me as an investor, because when I'm looking at an investment, I now look at it like the way I looked at my first business, which is, the first thing I'm looking at is, how can I lose money on this? And can I absolutely minimize my downside? The up sides will take care of themselves. It's the downsides that one needs to worry about.
  65. The only way one should buy stocks is if you understand the underlying business. You stay within the circle of competence. You buy businesses you understand. If you understand the business, you understand what they're worth. And that's the only reason you are to buy a stock.
  66. The average Chinese company has three sets of [accounting] books. You know, one for the government and one for the owner's wife and one for the owner's mistress. And so the problem you have is you don't know which set of books you're looking at. [In April 2010]
  67. [On not needing to meeting company CEO's.] Not being mesmerized by charisma will probably help you.
  68. [In 2010] I have an eye out on the markets, but there's just not a whole lot of value presently. But value can show up tomorrow, for example. So we're not in a hurry. Happy to have a leisurely lifestyle and wait for the game to come to us.
  69. You have to make sure that your losers are few and far between.
  70. There are so many good ideas around. You don't need to create your own ideas – you can clone them.
  71. People who knew Sam Walton would tell you this was not a very brilliant guy. But what he did was he spent an incredible amount of time in his competitors stores… He was looking at every single thing his competitors did every single time.
  72. Everything that Microsoft has had any kind of success with has been cloned.
  73. [Burger King versus McDonalds carefully choosing sites.] Burger King has two guys to figure out locations and all they do is basically go out and put Burger King's near McDonalds.
  74. [On his practice of cloning.] I have nothing new to share. All I'm going to give you is old handed ideas from other people.
  75. I started to apply Buffett's approach in 1994 to investing… I had about a $1 million in cash at the time. And I did really well… I had something like 75% annualized returns [In the beginning].
  76. Warren Buffett does not delegate any part of the investment process. He does not have analysts.
  77. I just wanted to clone what Buffett did.
  78. You have to keep learning because world keeps changing and competitors keep learning.
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