Wednesday, January 30, 2008

Jean-Marie Eveillard on WealthTrack

Jean-Marie Eveillard with another appearance on WealthTrack: VIDEO 1/25/08 and TRANSCRIPT
CONSUELO MACK: Jean-Marie, when you were here last in October, you mentioned the fact that there was something called, that Paul's talked about a lot, the Greenspan put and now it looks like we have a Bernanke put as well, and you noted that you thought that the Fed was basically going to bail out the financial sector, the banks, Wall Street, again. Is that what you see as happening right now?
JEAN-MARIE EVEILLARD: Yes. I suppose the cuts and the cuts to come will help the economy, will help restart credit expansion, which is what Mr. Bernanke desperately wants. Maybe he will be successful in that respect. Maybe not. But there are at least three problems with those cuts. Number one, it gives a sense of panic on the part of the monetary authorities. A sense of pandering to the stock market, to Wall Street, which is not extraordinarily popular today among the public and among some of the presidential candidates. Number two, it may create a problem in terms of the dollar, although not so far. And, number three, those cuts are taking place at a time when inflation seems to be perking up.
CONSUELO MACK: This could create problems.
JEAN-MARIE EVEILLARD: That's right. Maybe Mr. Bernanke is paying for the mistakes of Mr. Greenspan, but I'm not sure he's, maybe it's the only approach he can take. Maybe there is so much debt, including some of it hidden, that the U.S. economy cannot afford a recession so that anything can be done, and indeed, if Mr. Bernanke has to choose between inflation and deflation, he will choose inflation.

Monday, January 28, 2008

Credit Crisis - Robert Rodriguez, FPA Funds

The general hope is that the Fed, along with regulatory changes and fiscal policy stimulation, will be able to contain and soften this credit contraction. Given that this crisis was not a function of high interest rates or restrictive monetary policy, it seems like an optimistic view that lower rates and a few changes of regulatory policy, along with a potential $100-150 billion tax cut, will save the day. This crisis is a function of a credit bubble that financed an asset bubble that is now in the process of deflating. Until overpriced assets, as well as excess and unsound leverage, are allowed to clear the system, the recovery from this credit crisis should be delayed. As I wrote in the September FPA New Income Shareholder Letter, “future Fed policy actions may prove rather ineffective in dealing with these challenges.” The word “challenges” was referring not only to the credit contraction but also to high oil prices and a weak dollar. I also referred to Chairman Bernanke as “Greenspan Lite” because his initial rate cuts were examples of what an Alan Greenspan policy might have been. Again, this crisis is not about the level of interest rates but of excesses in lending and borrowing on inflated assets. The process of clearing these unsound practices is analogous to allowing a body fever to run its course, when appropriate medication is unavailable. The Fed’s medication is likely to be ineffective in dealing with this economic fever. Misguided policies could make the situation better in the short run but worse in the long run. This refers to short-term fiscal policy stimulation that was referred to in a recent Wall Street Journal opinion piece as “feel good economics.” Our problems and challenges that we are witnessing currently are the outgrowth of similar unsound monetary and fiscal policies of the past.

Wednesday, January 23, 2008

Greg Mankiw, Paul Krugman, and Fiscal Stimulus

From Greg Mankiw's Blog:
"a strategy of desperation"
My favorite book by Paul Krugman is Peddling Prosperity, which I once assigned in a course and still often recommend to students. A reader recently reminded me what the book says about the use of fiscal stimulus (page 32):
When monetary expansion is ineffective, fiscal expansion...must take its place. Such a fiscal expansion can break the vicious circle of low spending and low incomes, "priming the pump" and getting the economy moving again. But remember this is no by any means an all-purpose policy recommendation; it is essentially a strategy of desperation, a dangerous drug to be prescribed only when the usual over-the-counter remedy of monetary policy has failed.
Update: Jon Henke says that Paul has consistently expressed this view.
Mankiw's view:
Proposed Fiscal Stimulus: My View
Several reporters have called or emailed to get my view of the fiscal stimulus agreement announced today. Here it is.
I am personally skeptical that the economic weakness is sufficient at this point to justify such a package. Yesterday CBO came out with its forecast, including "growth for the year as a whole of under 2 percent and an increase in the unemployment rate to an average of 5.1 percent." That is similar to the current predictions of some of the best private forecasters, who put near-term growth between 1 and 2 percent.
In this environment, I would prefer to rely on monetary policy as the main source of macroeconomic stimulus. If there were a stronger case for a short-run demand-oriented fiscal stimulus, I would view the compromise package announced today as reasonable. But given where the economy is right now and the best forecasts of where it is heading, the fiscal package seems unnecessary as a short-run measure, while in the long run adding to the debt burden without doing anything to improve incentives for economic growth.
Addendum: The fact sheet says, "This relief would be available to everyone with taxable income less than $75,000 for singles and $150,000 for married couples filing jointly. It will be phased out for taxpayers above those income thresholds." That phase out is an increase in the effective marginal tax rate. So while the plan gives a short-run boost to aggregate demand, it has a short-run depressing effect on aggregate supply.

Monday, January 21, 2008

Meet the Portfolio Manager - Bruce Berkowitz

Morningstar - Conversation: Jean-Marie Eveillard and Marty Whitman


Chris Davis on WealthTrack

Chris Davis Video (1/18/08) on WealthTrack:
Related Previous Post: The Davis Research Methodology

Longleaf Partners Funds 4th Quarter Letter


Mauboussin - ROIC Patterns and Shareholder Returns: Sorting Fundamentals and Expectations


Thursday, January 17, 2008

Jean-Marie Eveillard Interview

Jean-Marie Eveillard interview on Bloomberg News: VIDEO

Tuesday, January 15, 2008

AmEx gets CEO pay right


Monday, January 14, 2008

How Inflation Swindles the Equity Investor - by Warren E. Buffett, FORTUNE May 1977

Let's assume that about half of earnings are paid out in dividends, leaving 6 percent of equity capital available to finance future growth. If inflation is low - say, 2 percent - a large portion of that growth can be real growth in physical output. For under these conditions, 2 percent more will have to be invested in receivables, inventories, and fixed assets next year just to duplicate this year's physical output - leaving 4 percent for investment in assets to produce more physical goods. The 2 percent finances illusory dollar growth reflecting inflation and the remaining 4 percent finances real growth. If population growth is 1 percent, the 4 percent gain in real output translates into a 3 percent gain in real per capita net income. That, very roughly, is what used to happen in our economy.
Link to easier to read (but with some spelling errors) version: HERE.

Wednesday, January 9, 2008

Ajit Jain on CNBC

Put Buyers First? What a Concept

When I spoke to analysts and investors, they had all kinds of reasons for Amazon’s performance last year. “They finally reached a point where their R&D spending was not expanding as fast as their revenues,” said Citigroup’s Mark S. Mahaney. He and others also talked about Amazon’s success in international markets, its fast-growing (and high margin) merchant market, which allows merchants to sell goods alongside Amazon, and its rapidly expanding Web services business. Mostly, though, the investing community pointed to those healthier margins as the main reason for the stock’s run-up. Legg Mason’s legendary fund manager, Bill Miller, who has made a small fortune for his investors by betting big on Amazon, told me that “Wall Street is almost fanatically focused on margin expansion and contraction.”
Related Links:

Tuesday, January 8, 2008

Misguided Guidance


Monday, January 7, 2008

Favorite Quotes

“Most geniuses—especially those who lead others—prosper not by deconstructing intricate complexities, but by exploiting unrecognized simplicities.” —Andy Benoit

“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.” —Joseph Tussman

“In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.” —Eric Hoffer

“The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.” —Charlie Munger

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.” —Warren Buffett (1996 Letter to Shareholders)

"It takes twenty years to build a reputation and five minutes to ruin it." —Warren Buffett

“Rule #1: Never Lose Money; Rule #2: Never forget Rule #1.” —Warren Buffett

"An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative." Ben Graham

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

“The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.” Warren Buffett

"What the wise man does in the beginning, the fool does in the end." Warren Buffett

"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. There must be some wisdom in the folk saying: 'It's the strong swimmers who drown.'" –Charlie Munger

"I could see that I was not going to cope as well as I wished with life unless I could acquire a better theory-structure on which to hang my observations and experiences. By then, my craving for more theory had a long history. Partly, I had always loved theory as an aid in puzzle solving and as a means of satisfying my monkey-like-curiosity. And, partly, I had found that theory-structure was a superpower in helping one get what one wanted. As I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory failed despite monstrous effort. Better theory I thought had always worked for me and, if now available could make me acquire capital and independence faster and better assist everything I loved." Charlie Munger

“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 are paying for. Move only when you have an advantage.” –Charlie Munger

"Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world." -Charlie Munger

"We don't have to be smarter than the rest. We have to be more disciplined than the rest." -Warren Buffett

"We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely." - Warren Buffett

"The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing." -Seth Klarman

"Charlie and I have a number of filters that things have to get through before we'll think about them." -Warren Buffett

“We really can say no in 10 seconds or so to 90%+ of all the things that come along simply because we have these filters.” -Warren Buffett

"We're emphasizing the knowable by predicting how certain people and companies will swim against the current. We're not predicting the fluctuation in the current." -Charlie Munger

"I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it." -Charlie Munger

“It was never my thinking that made the big money. It was always my sitting. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.” -Jesse Livermore

Either: "In the short run, the market is a voting machine, but in the long run it is a weighing machine." --Ben Graham ....  or  "...the market is not a weighing machine, on which the value of each issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion." --Ben Graham and David Dodd

“Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety.” - Ben Graham

“If it’s close, we don’t play.” - Ben Graham

"Value investing is risk aversion." - Seth Klarman

"Value investing is at its core the marriage of a contrarian streak and a calculator." - Seth Klarman

“To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don't when they don't.” -Seth Klarman

“As to methods there may be a million and then some, but principles are few. The man who grasps principles can successfully select his own methods. The man who tries methods, ignoring principles, is sure to have trouble.” -Ralph Waldo Emerson

"You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick 'no'." -Warren Buffett

“The game of life is the game of everlasting learning. At least it is if you want to win.” –Charlie Munger

"1) Don’t sell anything you wouldn’t buy yourself, 2) Don’t work for anyone you don’t respect, 3) Work only with people you enjoy." - Charlie Munger

"It is better to be roughly right than precisely wrong." - John Maynard Keynes

"In our view, though, investment students need only two well-taught courses-How to Value a Business, and How to Think about Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business who's earnings are virtually certain to be materially higher five, ten and twenty years from now." -Warren Buffett

"All intelligent investing is value investing -- acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger

"Interestingly, we have beaten the market quite handsomely over this time frame, although beating the market has never been our objective. Rather, we have consistently tried not to lose money and, in doing so, have not only protected on the downside but also outperformed on the upside." - Seth Klarman

“Doubt is not a pleasant condition, but certainty is absurd.” –Voltaire

"The considerations upon which expectations of prospective yields are based are partly existing facts which we can assume to be known more or less for certain, and partly future events which can only be forecasted with more or less confidence.

It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain. It is reasonable, therefore, to be guided to a considerable degree by the facts about which we feel somewhat confident, even then they may be less decisively relevant to the issue than other facts about which our knowledge is vague and scanty. For this reason the facts of the existing situation enter, in a sense disproportionately, into the formation of our long-term expectations; our usual practice being to take the existing situation and to project it into the future, modified only to the extent that we have more or less definite reasons for expecting a change.

The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield 10 years hence of a … [business enterprise] … amounts to little or sometimes to nothing; or even five years hence." - John Maynard Keynes

"The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it." -Warren Buffett

“We believe that almost all really good investment records will involve relatively little diversification. The basic idea that it was hard to find good investments and that you wanted to be in good investments, and therefore, you’d just find a few of them that you knew a lot about and concentrate on those seemed to me such an obviously good idea. And indeed, it’s proven to be an obviously good idea. Yet 98% of the investing world doesn’t follow it. That’s been good for us.” - Charlie Munger

“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence….One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

“An argument is made that there are just too many question marks about the near future; wouldn’t it be better to wait until things clear up a bit? You know the prose: “Maintain buying reserves until current uncertainties are resolved,” etc. Before reaching for that crutch, face up to two unpleasant facts: The future is never clear and you pay a very high price for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.” -Warren Buffett

"Cash combined with courage in a time of crisis is priceless." -Warren Buffett

“The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces.” -Warren Buffett

“If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction.” -Seth Klarman

“We work really hard never to get confused with what we know from what we think or hope or wish.” -Seth Klarman

“It’s one thing to have an opinion of the macro but something very different to act as if it’s correct.” -Howard Marks

“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” -William Arthur Ward

"Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity." -Albert Einstein

“In my opinion, there are two key concepts that investors must master: value and cycles. For each asset you’re considering, you must have a strongly held view of its intrinsic value. When its price is below that value, it’s generally a buy. When its price is higher, it’s a sell. In a nutshell, that’s value investing.

But values aren’t fixed; they move in response to changes in the economic environment. Thus, cyclical considerations influence an asset’s current value. Value depends on earnings, for example, and earnings are shaped by the economic cycle and the price being charged for liquidity.

Further, security prices are greatly affected by investor behavior; thus we can be aided in investing safely by understanding where we stand in terms of the market cycle. What’s going on in terms of investor psychology, and how does it tell us to act in the short run? We want to buy when prices seem attractive. But if investors are giddy and optimism is rampant, we have to consider whether a better buying opportunity mightn’t come along later.” –Howard Marks

"I have no data yet. It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts." -The Adventures of Sherlock Holmes

“A man should never be ashamed to own that he has been in the wrong, which is but saying, in other words, that he is wiser today than he was yesterday.” –Jonathan Swift

“There is nothing wrong with changing a plan when the situation has changed.” –Seneca

“Occasions when you can change your mind should be cherished, because they mean you’re smarter than you were before.” -Malcolm Gladwell

“Life is not about waiting for the storm to pass, it is about learning to dance in the rain.” -Unknown

“Discovery is looking at what everyone else sees, and seeing what everyone else misses.” -Kauffman Foundation

“Don't be astonished at new ideas; you know it does not cease to be true because it is not accepted by many.” -Benedict de Spinoza

"The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phil Fisher

"In economics, you always want to ask 'And then what?'" - Warren Buffett

“There is a tide in the affairs of men which, taken at the flood, leads on to fortune.” -Shakespeare

“The first principle is that you must not fool yourself, and you are the easiest person to fool.” -Richard Feynman

"The chains of habit are too light to be felt until they are too heavy to be broken." -Warren Buffett

“The minute you get away from the fundamentals – whether it’s proper technique, work ethic, or mental preparation – the bottom can fall out of your game, your schoolwork, your job, whatever you’re doing.” -Michael Jordan

"Be so good they can't ignore you." -Steve Martin

“Plough deep, while sluggards sleep, and you shall have corn to sell and keep. Work while it is called today, for you know not how much you may be hindered tomorrow. One today is worth two tomorrows, and Never leave that till tomorrow, which you can do today.”

“If you were a servant, would you not be ashamed that a good master should catch you idle? Are you then your own master? Be ashamed to catch yourself idle when there is so much to be done for yourself, your family, and your country. Handle your tools without mittens: Remember, that the cat in gloves catches no mice.”

“It is true, there is much to be done, and perhaps, you are weak handed; but stick to it steadily, and you will see great effects; for Constant dropping wears away stones; and by diligence and patience the mouse ate in two the cable; and little strokes fell great oaks.” -Ben Franklin

“Acquire Riches by Industry and Frugality.” -Ben Franklin

“Your life must focus on the maximization of objectivity." -Charlie Munger

“A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving 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.” -Charlie Munger

"Ain't only three things to gambling: knowing the 60-40 end of the proposition, money management, and knowing yourself." -"Puggy" Pearson

“You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don’t have that cast of mind, you’re destined for failure even if you have a high I.Q.” -Charlie Munger

"Here's one truth that perhaps your typical investment counselor would disagree with: if you're comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not a tragedy.” -Charlie Munger

“He is a wise man who does not grieve for the things which he has not, but rejoices for those which he has.” -Epictetus

“You’ve got to have models in your head and you’ve got to array you experience – both vicarious and direct – onto this latticework of mental models.” -Charlie Munger

“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group… then to hell with them.” -Charlie Munger

“If it is wisdom you’re after, you’re going to spend a lot of time on your ass reading.” -Charlie Munger

"In my whole life, I have known no wise people (over a broad subject matter area) 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." -Charlie Munger

"Warren and I insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business." -Charlie Munger

“The man who doesn’t read good books has no advantage over the man who can’t read them.” -Mark Twain

“Not everything that counts can be counted, and not everything that can be counted counts.” -sign that hung in Albert Einstein’s office at Princeton

"Most of what we say and do is not essential. If you can eliminate it, you'll have more time, and more tranquility. Ask yourself at every moment, 'Is this necessary?" -Marcus Aurelius

"The definition of insanity is doing something over and over again and expecting different results." -Albert Einstein

“If I have seen further [than certain other men] it is by standing upon the shoulders of giants.” -Sir Isaac Newton

“If I am anything, which I highly doubt, I have made myself so by hard work.” -Sir Isaac Newton

“The harder you work the luckier you get.” -Ben Franklin

"More important than the will to win is the will to prepare." -Charlie Munger

“In all things success depends on previous preparation, and without such previous preparation there is sure to be failure” –Confucius

"Hard work, honesty, if you keep at it, will get you almost anything." -Charlie Munger

"Plans are only good intentions unless they immediately degenerate into hard work." -Peter Drucker

"Determine never to be idle. No person will have occasion to complain of the want of time who never loses any. It is wonderful how much may be done if we are always doing." -Thomas Jefferson

"I have been speculating...what makes a man a discoverer of undiscovered things, and a most perplexing problem it is. Many men who are very clever, -- much cleverer than the discoverers -- never originate anything. As far as I can conjecture, the art consists in habitually searching for the causes and meaning of everything which occurs. This implies sharp observation and requires as much knowledge as possible of the subject investigated." -Charles Darwin

"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him." –Leo Tolstoy

“It is impossible to begin to learn that which one thinks one already knows.” –Epictetus

"I have always thought that one man of tolerable abilities may work great changes, and accomplish great affairs among mankind if he first forms a good plan and, cutting off all amusements or other employments that would divert his attention, makes the execution of that same plan his sole study and business." -Ben Franklin

“The difference between successful people and really successful people is that really successful people say no to almost everything.” –Warren Buffett

“At Baupost, we constantly ask: 'What should we work on today?' We keep calling and talking. We keep gathering information. You never have perfect information. So you work, work and work. Sometimes we thumb through Value Line. How you fill your inbox is very important.” -Seth Klarman

"You can become, to an enormous degree, the person you want to be." -Warren Buffett

“I have a motto: it’s never too late to give up. It’s never too late to give up what you are doing, and start doing what you realise you love.” –Hans Rosling

"Success is not final, failure is not fatal: it is the courage to continue that counts." -Winston Churchill

“The content of your character is your choice. Day by day, what you choose, what you think, and what you do is who you become. Your integrity is your destiny…it is the light that guides your way.” -Heraclitus

"What difference does it make how much there is laid away in a man's safe or in his barns, how many head of stock he grazes or how much capital he puts out at interest, if he is always after what is another's and only counts what he has yet to get, never what he has already. You ask what is the proper limit to a person's wealth? First, having what is essential, and second, having what is enough." -Seneca

"When I was 17 I read a quote that went something like "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself, "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "no" for too many days in a row, I know I need to change something. Remembering that I'll be dead soon is the most important thing I've ever encountered to help me make the big choices in life, because almost everything--all external expectations, all pride, all fear of embarrassment or failure--these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart." -Steve Jobs

"Whenever you do any one thing intensely over a period of time you have to give up other lives you could be living. You have to have a real single-minded kind of tunnel vision if you want to get anything significant accomplished. Especially if the desire is not to be a businessman, but to be a creative person." -Steve Jobs

"Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people. Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have." -Steve Jobs

“Complex systems don't have causes. There are just patterns and at any point one's state of health can move randomly onto a new path. It is not the particular path that one should think about. You move over an ensemble of possible paths, conditional on how you live and the choices you make. All you can do is to try to influence the distribution of possibilities. You can never set the particular path or outcome that will be yours from this time forward. If you think you can look back and see some cause of events, you are probably suffering hindsight bias or what I call complexity blindness.

Think of the freedom this view gives you. There is no possibility of failure because you only control your actions and they only influence the probable evolution of your life over stochastic future paths. There is no failure, only feedback.” –Art De Vany

Warren Buffett on debt:

"We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually large portions of their net worth to our care."

"In the end, alchemy, whether it is metallurgical or financial, fails. A base business can not be transformed into a golden business by tricks of accounting or capital structure. The man claiming to be a financial alchemist may become rich. But gullible investors rather than business achievements will usually be the source of his wealth.”

"You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing. I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X. You ought to have a good time all the time as you go along.”


"The financial calculus that Charlie and I employ would never permit our trading a good night's sleep for a shot at a few extra percentage points of return. I've never believed in risking what my friends and family have and need in order to pursue what they don't have and don't need."

Seth Klarman on risk:

“The risk of an investment is described by both the probability and the potential amount of loss. The risk of an investment—the probability of an adverse outcome—is partly inherent in its very nature. A dollar spent on biotechnology research is a riskier investment than a dollar used to purchase utility equipment. The former has both a greater probability of loss and a greater percentage of the investment at stake.

In the financial markets, however, the connection between a marketable security and the underlying business is not as clear-cut. For investors in a marketable security the gain or loss associated with the various outcomes is not totally inherent in the underlying business; it also depends on the price paid, which is established by the marketplace. The view that risk is dependent on both the nature of investments and on their market price is very different from that described by beta.

While security analysts attempt to determine with precision the risk and return of investments, events alone accomplish that. For most investments the amount of profit earned can be known only after maturity or sale. Only for the safest of investments is return knowable at the time of purchase: a one-year 6 percent T-bill returns 6 percent at the end of one year. For riskier investments the outcome must be known before the return can be calculated. If you buy one hundred shares of Chrysler Corporation, for example, your return depends almost entirely on the price at which it is trading when you sell. Only then can the return be calculated.

Unlike return, however, risk is no more quantifiable at the end of an investment that it was at its beginning. Risk simply cannot be described by a single number. Intuitively we understand that risk varies from investment to investment: a government bond is not as risky as the stock of a high-technology company. But investments do not provide information about their risks the way food packages provide nutritional data.

Rather, risk is a perception in each investor’s mind that results from analysis of the probability and amount of potential loss from an investment. If an exploratory oil well proves to be a dry hole, it is called risky. If a bond defaults or a stock plunges in price, they are called risky. But if the well is a gusher, the bond matures on schedule, and the stock rallies strongly, can we say they weren’t risky when the investment after it is concluded than was known when it was made.

There are only a few things investors can do to counteract risk: diversify adequately, hedge when appropriate, and invest with a margin of safety. It is a precisely because we do not and cannot know all the risks of an investment that we strive to invest at a discount. The bargain element helps to provide a cushion for when things go wrong.”

“While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.” -Seth Klarman

“Risk means more things can happen than will happen.” -Elroy Dimson

"We have two kinds of forecasters, those who don't know and those who don't know they don't know." -John Kenneth Galbraith

"It is frightening to think that you might not know something, but more frightening to think that by and large the world is run by people who have faith that they know exactly what is going on." -Amos Tversky

"It ain't what you don't know that gets you into trouble. It what you know for certain that just ain't true." -Mark Twain

“There is a great difference between knowing and understanding: you can know a lot about something and not really understand it.” –Charles F. Kettering

"I have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections, but we care very much about, and look very deeply at, track records. If a company has a lousy track record, but a very bright future, we will miss the opportunity..." -Warren Buffett

"[Projections] are put together by people who have an interest in a particular outcome, have a subconscious bias, and its apparent precision makes it fallacious. They remind me of Mark Twain's saying, 'A mine is a hole in the ground owned by a liar.' Projections in America are often a lie, although not an intentional one, but the worst kind because the forecaster often believes them himself." -Charlie Munger

Quotes on Simplicity:

"We have a passion for keeping things simple." -Charles Munger

"It's amazing how many people even today use a computer to do something you can do with a pencil and paper in less time." -Richard Feynman (from No Ordinary Genius)

"The art of being wise is the art of knowing what to overlook." -William James

"Part of that [having uncommon sense], I think, is being able to tune out folly, as distinguished from recognizing wisdom. You've got whole categories of things you just bat away so your brain isn't cluttered with them. That way, you're better able to pick up a few sensible things to do." -Charles Munger

"Yeah, we don't consider many stupid things. I mean, we get rid of 'em fast...Just getting rid of the nonsense -- just figuring out that if people call you and say, 'I've got this great, wonderful idea', you don't spend 10 minutes once you know in the first sentence that it isn't a great, wonderful idea...Don't be polite and go through the whole process." -Warren Buffett

"The harder you work, the more confidence you get. But you may be working hard on something that is false." -Charles Munger

“Simplicity means the achievement of maximum effect with minimum means.” -Koichi Kawana

“He is a foolish swimmer who swims against the stream, when he might take the current sideways.” -Ovid

“If you can't explain it simply, you don't understand it well enough.” -possibly by Albert Einstein

“Order and simplification are the first steps toward the mastery of a subject.” -Thomas Mann

“A theory is the more impressive the greater the simplicity of its premises, the more different kinds of things it relates, and the more extended its area of applicability.” -Albert Einstein

“To avoid the various foolish opinions to which mankind are prone, no superhuman genius is required. A few simple rules will keep you, not from all error, but from silly error.” -Bertrand Russell

“There is a master key to success with which no man can fail. Its name is simplicity. Simplicity, I mean, in the sense of reducing to the simplest possible terms every problem that besets us. Whenever I have met a business proposition which, after taking thought, I could not reduce to simplicity, I have left it alone.” -Henri Deterding

“The ability to simplify means to eliminate the unnecessary so that the necessary may speak.” -Hans Hofmann

“There never was a sounder logical maxim of scientific procedure than Ockham’s razor: Entia non sunt multiplicanda praeter necessitatem. That is to say; before you try a complicated hypothesis, you should make quite sure that no simplification of it will explain the facts equally well.” -Charles Sanders Peirce

But it is also important to remember not try to over-simplify complex matters [Peter Bevelin comment]

“When discussing complex systems like brains and other societies, it is easy to oversimplify: I call this Occam's lobotomy.” -Irving John Good

“Theories should be as simple as possible, but no simpler.” -possibly by Albert Einstein

More from Ben Franklin:

“An ounce of prevention is worth a pound of cure.”

“He that would live in peace and at ease, must not speak all he knows, nor judge all he sees.”

“What you would seem to be, be really.”

“As Pride increases, Fortune declines.”

“Industry, Perseverance, & Frugality, make Fortune yield.”

“To-morrow I’ll reform, the fool does say;
To-day itself’s too late; - the wise did yesterday.”

“Promises may get thee friends, but non-performance will turn them into enemies.”

“Enjoy the present hour, be mindful of the past; And neither fear nor wish the approaches of the last.”

“What signifies knowing the Names, if you know not the Natures of Things?”

“Well done, is twice done.”

“There are three Things extreamly hard; Steel, a Diamond and to know one’s self.”

“O Lazy bones! Dost thou think God would have given thee arms and legs, if he had not design’d thou should’st use them?”

“He’s a Fool that cannot conceal his Wisdom.”

“No gains without pains.”

“Beware of little Expenses: a small Leak will sink a great Ship.”

“Pay what you owe, and you’ll know what is your own.”

“Be always ashamed to catch thyself idle.”

“If you would keep your secret from an enemy, tell it not to a friend.”

“Many have been ruined by buying good pennyworths.”

“He that lieth down with dogs, shall rise up with fleas.”

“A Slip of the Foot you may soon recover, but a slip of the Tongue you may never get over.”

“He that waits upon fortune, is never sure of dinner.”

“Would you live with ease, do what you ought, and not what you please.”

“People who are wrapped up in themselves make small packages.”

“Would you persuade, speak of Interest, not of Reason.”

“Do good to thy Friend to keep him, to thy Enemy to gain him.”

“The first Degree of Folly, is to conceit one’s self wise; the second to profess it; the third to despise Counsel.”

“You may delay, but Time will not.”

“Lost time is never found again.”

“Take this remark from Richard, poor and lame, Whate’er’s begun in Anger, ends in Shame.”

“All things are easy to Industry, all things difficult to Sloth.”

“He that cannot obey, cannot command.”

“If you would reap Praise you must sow the Seeds, gentle Words and useful Deeds.”

“Haste makes Waste.”

“Early to bed and early to rise, makes a man healthy, wealthy, and wise.”

“If you know how to spend less than you get, you have the philosopher’s stone.”

“Diligence is the mother of good luck.”

“At a great penny worth, pause a while.”

“Ignorance leads Men into a party, and Shame keeps them from getting out again.”

“He that pays for work before it’s done, has but a pennyworth for two pence.”

“Anger is never without Reason, but seldom with a good One.”

“Thou can’st not joke an enemy into a friend, but thou may’st a friend into an enemy.”

“He that falls in love with himself, will have no rivals.”

“Patience in Market, is worth Pounds in a year.”

“When the well’s dry, we know the worth of water.”

“Virtue & Happiness are Mother and Daughter.”

“Buy what thou hast no need of, and e’er long thou shalt sell they necessaries.”

“If you would not be forgotten, as soon as you are dead and rotten, either write things worth reading, or do things worth the writing.”

“He that speaks much, is much mistaken.”

“Since thou art not sure of a Minute, throw not away an Hour.”

“’Tis easier to suppress the first Desire, than to satisfy all that follow it.”

“He that pursues two hares at once, does not catch one lets t’other go.”

“The sleeping Fox catches no poultry. Up! up!”

“If your Riches are yours, why don’t you take them to t’other World?”

“What more valuable than Gold? Diamonds. Than Diamonds? Virtue.”

“Great Estates may venture more; Little Boats must keep near Shore.”

“’Tis easier to prevent bad habits than to break them.”

“Blessed is he that expects nothing, for he shall never be disappointed.”

“Diligence overcomes Difficulties, Sloth makes them.”

“Neglect mending a small Fault, and ‘twill soon be a great One.”

“Proclaim not all though knowest, or all though owest.”

“A Change of Fortune hurts a wise Man no more than a Change of the Moon.”

“Love your Enemies, for they tell you your Faults.”

“Dost thou love Life? Then do not squander Time; for that’s the Stuff Life is made of.”

“Silence is not always a Sign of Wisdom, but Babbling is ever a Folly.”

“A long Life may not be good enough, but a good Life is long enough.”

“For Age and Want save while you may; No morning Sun lasts a whole day.”

“Don’t think so much of your own Cunning, as to forget other Men’s; a Cunning Man is overmatched by a cunning Man and a Half.”

“You may give a Man an Office, but you cannot give him Discretion.”

“He that doth what he should not, shall feel what he would not.”

“He is a Governor that governs his Passions, and he a Servant that serves them.”

“Employ thy time well, if thou meanest to gain leisure.”

“Suspicion may be no fault, but showing it may be a great one.”

“A good Example is the best Sermon.”

“Wise Men learn by others’ harms; Fools by their own.”

“Laziness travels so slowly that Poverty soon overtakes him.”

“He that by the Plough would thrive, himself must either hold or drive.”

“Life with Fools consists in Drinking; with the wise Man, living’s Thinking.”

“The second Vice is Lying; the first is running in Debt.”

“Three may keep a secret, if two of them are dead.”

“The honest Man takes Pains, and then enjoys Pleasures; the knave takes Pleasure, and then suffers Pains.”

“To be proud of Knowledge, is to be blind with Light.”

“Get what you can, and what you get hold; ‘tis the Stone that will turn all your Lead into Gold.”

“An honest Man will receive neither Money nor Praise that is not his due.”

“Men take more pains to mask than mend.”

“To be proud of Virtue, is to poison yourself with the Antidote.”

“One To-day is worth two To-morrows.”

“Idleness is the Dead Sea, that swallows all Virtues: Be active in Business, that Temptation may miss her Aim; the Bird that sits, is easily shot.”

“Let no pleasure tempt thee, no profit allure thee, no ambition corrupt thee, no example sway thee, no persuasion move thee, to do any thing which thou knowest to be evil; so shalt thou always live jollily; for a good conscience is a continual Christmas.”

"So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do."

"When in doubt, don't."