The Most Important Thing: Uncommon Sense for the Thoughtful Investor

I like to say, “Experience is what you got when you didn’t get what you wanted.

There are old investors, and there are bold investors, but there are no old bold investors.

Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time . . . or become far more so.

Investment success doesn’t come from “buying good things,” but rather from “buying things well.

There’s a big difference between probability and outcome. Probable things fail to happen—and improbable things happen—all the time.” That’s one of the most important things you can know about investment risk.

Being too far ahead of your time is indistinguishable from being wrong.” So

We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes than it is to guarantee maximum returns under favorable ones.

Here’s the key to understanding risk: it’s largely a matter of opinion.

Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge.

There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Superior investing, as I hope I’ve convinced you by now, requires second-level thinking—a way of thinking that’s different from that of others, more complex and more insightful.

Voltaire: “The perfect is the enemy of the good.” This

Every once in a while, an up-or-down-leg goes on for a long time and/or to a great extreme and people start to say "this time it's different." They cite the changes in geopolitics, institutions, technology or behaviour that have rendered the "old rules" obsolete. They make investment decisions that extrapolate the recent trend. And then it turns out that the old rules still apply and the cycle resumes. In the end, trees don't grow to the sky, and few things go to zero.

There's only one way to describe most investors: trend followers.

Buying something for less than its value. In my opinion, this is what it’s all about—the most dependable way to make money. Buying at a discount from intrinsic value and having the asset’s price move toward its value doesn’t require serendipity; it just requires that market participants wake up to reality. When the market’s functioning properly, value exerts a magnetic pull on price.

It’s 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’s going on.

The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological. Investor

Risk means uncertainty about which outcome will occur and about the possibility of loss when the unfavorable ones do.

Selling for more than your asset’s worth. Everyone hopes a buyer will come along who’s willing to overpay for what they have for sale. But certainly the hoped-for arrival of this sucker can’t be counted on. Unlike having an underpriced asset move to its fair value, expecting appreciation on the part of a fairly priced or overpriced asset requires irrationality on the part of buyers that absolutely cannot be considered dependable.

Everything you needed to know in the years leading up to the crash could be discerned through awareness of what was going on in the present.

Once in a while, however, the future turns out to be very different from the past. It’s at these times that accurate forecasts would be of great value. It’s also at these times that forecasts are least likely to be correct. Some forecasters may turn out to be correct at these pivotal moments, suggesting that it’s possible to correctly

people should like something less when its price rises, but in investing they often like it more.

SETH KLARMAN: Most of these characteristics are not permanent. Something broadly accepted can become controversial or even taboo. Information can become more or less available. Thus, an asset class deemed close to efficient at one point may become quite inefficient at another. European

An accurate estimate of intrinsic value is the essential foundation for steady, unemotional and potentially profitable investing.

Patient opportunism, buttressed by a contrarian attitude and a strong balance sheet, can yield amazing profits during meltdowns.

Charlie Munger gave me a great quotation on this subject, from Demosthenes: “Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.” The belief that some fundamental limiter is no longer valid—and thus historic notions of fair value no longer matter—is invariably at the core of every bubble and consequent crash. In fiction, willing suspension of disbelief adds to our enjoyment.

The most dangerous thing is to buy something at the peak of its popularity. At that point, all favourable facts and opinions are already factored into its price and no new buyers are left to emerge

The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.

I’m convinced that no idea can be any better than the action taken on it,

If everyone likes it, it's probably because it has been doing well. Most people seem to think that outstanding performance to dates presages outstanding future performance. Actually, it's more likely that outstanding future performance to date has borrowed from the future and thus presages subpar performance from her on out.

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.