The Principal of Maximum Pessimism

Charlie Munger on Passion

“I have never succeeded very much in anything in which I was not very interested. If you can’t find something, I don’t think you’ll succeed very much, even if you’re fairly smart. I think that having this deep interest in something is part of the game. If your only interest is Chinese calligraphy I think that’s what you’re going to have to do. I don’t see how you can succeed in astrophysics if you’re only interested in calligraphy.” - Charlie Munger

“You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.” - Steve Jobs

Many people are attracted to investing because of wrong reasons like expensive cars etc. If we look at successful people long-term investors, we will find that they are driven by intellectual challenge that investing possess with wealth being an effect of that process and not other way around.

Passion fulfills our lives and not money or recognition.

Why you should not dip into your retirement corpus to fund your child's higher education

http://articles.economictimes.indiatimes.com/2015-01-19/news/58231347_1_rs-20-lakh-ppf-retirement

Explanation of Warren Buffet's two rules of investing

http://www.livemint.com/Money/DIyXPTM5KdaagdXJqkTbQJ/Why-downside-matters-and-some-basic-arithmetic.html

Baseball - The Best Sports Analogy to Investing

Baseball - The Best Sports Analogy to Investing

• Know your sweet spot, and only swing at pitches you can hit. - Ted Williams (in book The Science of Hitting)
• The biggest difference between baseball and investing is in investing there are no called stikes.
• “The stock market is a no-called-strike game. You don’t have to swing at every everything- you can wait four your pitch. The problem when you are a money manager is that your fans keep yelling, ‘Swing, you bum!’ ” - Warren Buffett

Charlie Munger on How you can get into great business

“We’ve really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.How do you get into these great companies? One method is what I’d call the method of finding them small get ‘em when they’re little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it’s a very beguiling idea. If I were a young man, I might actually go into it.” – Charlie Munger (in his speech “A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business.” given in 1995)

“How do you get into these great companies? One method is what I’d call the method of finding them small get ‘em when they’re little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it’s a very beguiling idea. If I were a young man, I might actually go into it.
But it doesn’t work for Berkshire Hathaway anymore because we’ve got too much money. We can’t find anything that fits our size parameter that way. Besides, we’re set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It’s just not something that I’ve done.
Finding ‘em big obviously is very hard because of the competition. So far, Berkshire’s managed to do it. But can we continue to do it? What’s the next Coca-Cola investment for us? Well, the answer to that is I don’t know. I think it gets harder for us all the time….
And ideally and we’ve done a lot of this—you get into a great business which also has a great manager because management matters. For example, it’s made a great difference to General Electric Company (NYSE:GE) that Jack Welch came in instead of the guy who took over Westinghouse—a very great difference. So management matters, too.
Occasionally, you’ll find a human being who’s so talented that he can do things that ordinary skilled mortals can’t. I would argue that Simon Marks—who was second generation in Marks & Spencer of England—was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man.
These people do come along—and in many cases, they’re not all that hard to identify. If they’ve got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much.
However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.
But, very rarely, you find a manager who’s so good that you’re wise to follow him into what looks like a mediocre business.” — Charlie Munger’s speech, “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business”. - Charlie Munger

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

Charlie Munger looks for following intangible qualities in companies: strength of management, durability of its brand, how hard it is to replicate/copy for competitors. Munger likes to invest in companies which does not require continual investment and spat out more cash than it consumed.

Warren Buffett on Great Business

“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very very few businesses like this. Coke has high returns on capital, but incremental capital doesn’t earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns. Most of our businesses generate lots of money, but can’t generate high returns on incremental capital — for example, See’s and Buffalo News. We look for them [areas to wisely reinvest capital], but they don’t exist.
So, what we do is take money and move it around into other businesses. The newspaper business earned great returns but not on incremental capital. But the people in the industry only knew how to reinvest it [so they squandered a lot of capital]. But our structure allows us to take excess capital and invest it elsewhere, wherever it makes the most sense. It’s an enormous advantage.” – Warren Buffett (at 2003 Berkshire Hathway meeting.)

“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result."- Charlie Munger