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31 Lessons Learnt (Sometimes Painfully) About Value Investing And The Money Management Business

1. Rather than trying to win by outsmarting the competition, better trying to win by eliminating the competition, and decide to fish where it doesn’t.

2. With hindsight, you realize that almost all the decisions you took – even the profitable ones – were bad, either in themselves or relative to their opportunity cost; you should have done much less in quantity, much more in quality.

3. What is well thought-out is clearly expressed; the best ideas can be summed up in one sentence and one basic calculation.

4. The best ideas jump at your face as you discover them; the research process that follows just revolves around validation.

5. Nobody resists a good story, yet compelling narratives often yield disastrous results; whereas outstanding opportunities sometimes surface out of ugly narratives.

6. In the short run – say, five years – the money management business is about 80% luck and 20% skills; in the long run, it swaps to 80% skills and 20% luck.

7. To ensure the long-term success of a money management operation, the client side of the equation is more important than the manager’s; always pick the former with maximum care.

8. Sometimes bad process leads to great outcomes, and sometimes great process leads to bad outcomes; the world owes us nothing — it was here first — and has never been designed as a fair place.

9. Great managers will go through long periods of under-performance; that’s a great time to hop in. Average managers will go through long periods of over-performance; that’s a great time to get out.

10. Some investors are fantastic analysts but poor portfolio managers, while some others are poor analysts but fantastic managers; those fantastic at both endeavors stand out as a rare breed.

11. It is impossible to avoid the pitfalls of hubris after years of repeated successes; in a like manner, it is impossible to avoid the stigma of defeat after years of repeated failures.

12. Irrespective of how strong a tailwind, how smart a manager and how sharp the rhetoric, one day or another excessive leverage will kill the business; there are no exceptions and this time won’t be different.

13. Value investing appeals to old-fashioned virtues such as fortitude, freedom, sound logic and humility; but unless you’re Warren Buffett, it is useless trying to evangelize non-believers, for when misfortune strikes they will ultimately hold it as a grudge against you.

14. There’s no investing style better than another; there’s just a style you get comfortable with because it fits your particular temperament.

15. There’s only one definition of value investing — the disciplined pursuit of mispriced gambles — but plenty of roads that lead to Rome; find yours instead of following others’, for value always lies in the eye of the beholder.

16. One lucky break, or one supremely shrewd decision — can we tell them apart? — often counts for more than a lifetime of hard work; but one can’t encounter the former without going through the latter.

17. There’s no substitute to experience – regardless all the great books you’ve read – and no shortcut to any place worth going.

18. In investing as in sports, science, arts or entrepreneurship, radical success demands radical concentration, and thus radical danger; the no-risk route leads to the no-greatness average – which is perfectly fine in itself if that’s the goal.

19. In their words, all managements are “disciplined stewards of capital”, focused on “value creation” and “free cash-flow generation”, operating “unique assets” in a “low-cost” manner; numbers often tell a different story.

20. The best way to start understanding a business is to pick up a pencil and rewrite by hand – old-school style, tediously – eight years of balance sheets, line per line; you can then track where the money came from, where it went and how it performed.

21. Having an actual business experience helps immensely to analyze and understand companies; it also helps to keep your ego in check when criticizing managements’ decisions, for you realize how difficult their job is.

22. A minority shareholder is a junior partner; as an obvious starting point, he should know well about the senior partners he’s going to associate with.

23. It pays great dividends to cultivate a network of likeminded practitioners, and share all you’ve got without keeping count; in the long run, the return on generosity eclipses all other career strategies.

24. Nobody reads long research; act on your own conclusions if you’re in the capacity to do so.

25. In everything, great practitioners stick to the rules 99.9% of the time, and break them magnificently the remaining 0.01%; that’s precisely when they distance the competition.

26. Not everything that can be counted counts, and not everything that counts can be counted; oftentimes, if there were clear-cut numbers to be shown, the opportunity would not exist.

27. No point but fooling yourself and others in seeking precision in a world that isn’t; in essence, transformative decisions are made from imprecise or missing information, and rely heavily on intuition – but intuition backed-up by solid experience, which differs from gambits fueled by foolish dreams of glory.

28. The so-called information age creates phenomenal price distortions in the securities markets, for it makes people fragile and much less capable of placid, stoic thinking; what the world now perceives as the long-term is the very short-term business wise, and the ridiculously imminent within the great scheme of things.

29. Stability is not the way of the world; don’t kid yourself into thinking that everything is under control, because it never was and never will — it just can’t be.

30. It is disturbingly lonely at the top, and so comfortably crowded at the bottom; are you sure that you really want what you’re aiming at?

31. Kipling said it all.

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