I don’t like reading stories, or so I thought—but as it turns out, true stories don’t feel like stories to me at all. Biographies, memoirs, psychology/sociology, and business books—these non-fiction genres have helped me fall in love with reading in a way that for years felt out of reach through the likes of thrillers and crime and historical fiction and romance novels that everyone around me seemed to recommend. I’ve found my place in the reading world, and I spent so much of my free time reading and listening to books this past year. I love to read about people’s lives, experiences, and lessons they’ve learned. I love to feel like I am learning, too. I don’t read so much to get lost in the pages—I tend to enjoy reads that engage my mind but also catch me deep in thought myself, provoked by what I’ve just learned. And I’ve realized that I read to get inspired by the true stories of others.
Two books I read this year were The Snowball by Alice Schroeder, a biography of Warren Buffett, and more recently, University of Berkshire Hathaway by Daniel Pecaut, essentially a 30-year first-hand interpretation of the wisdom, strategies, and lessons gleaned from attending decades of Berkshire Hathaway’s annual shareholder meetings. I think I can make the fair assumption that Buffett is someone who needs no introduction, but besides maybe being the most famous investor of all time and the Oracle of Omaha, he, along with Charlie Munger until his passing in 2023, is a fountain of timeless insights and principles (and wit) that reach far beyond the world of investing. And this year, I’ve learned so much from him.
To be intelligent, you don’t have to be a genius. You don’t have to necessarily be a pioneer or innovator or a visionary with groundbreaking ideas and exceptional foresight. If we can learn from other people’s life work, or pick up where they left off, we can be remarkable. In fact, sometimes I’m amazed that after all this time—after centuries of people thinking, and examining, and pontificating, there are still insights to be had. How have we not thought of everything?! I sound like my 5-year-old. Or Dr. Seuss. How are people even continuing to think new thoughts they haven’t already thunk before?! I think it’s because often the most incredible, profound insights are also the simplest and hardest to apply in life. Rocket science is impressive in its own right, sure, but uncomplicated, timeless principles that feel mind blowing are even more impressive. And that is the essence of Buffett and Munger and why I’ve loved reading their stories, and others like them, this year.
I’ve been thinking a lot about their lessons in particular as we close out the books on another year—a year that’s watched the stock market reach new all-time highs more than 50 times. This feels like something to celebrate in investors’ portfolios but should also act as a sobering reminder that the party won’t last forever, and that’s OK, because the long-term trajectory has always been upward and to the right. This is a great time to go back to first principles and remember why we are investors at all. We’re not investors to time or beat the market; we’re investors to partake in what has historically been the greatest long-term wealth building machine for average folks on the planet, and we’re in it for the long haul.
Investing at all-time high may feel illogical (isn’t the way to make money to buy low and sell high?!) but historical market data tells a different story. J.P. Morgan Asset Management did some incredible research that revealed that portfolio returns from investing on any given day versus investing at an all-time high aren’t very dissimilar and, in some cases, actually even better when investing at market highs because new all-time highs tend to be bunched together. In their words, “Market strength begets more market strength.”
Source: J.P. Morgan Asset Management’s Guide to the Markets
But anyway, back to Buffet, Munger, and Berkshire. I want to memorialize some of the lessons they’ve taught me this year—all of which feel especially timely in that they’re first principles to guide through lifetimes, not short-term strategies for timing investment decisions.
On Envy
Buffett and Munger have a very healthy relationship with comparison in that they don’t seem to do much of it. They aren’t concerned with the actions of others and are very comfortable swimming against the current. Munger said, “The idea of caring that someone is making money faster than you is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at.” In their minds, if someone else is getting rich, who cares? Someone else will always be doing better than you are. But concerning yourself with what you want to avoid in life, such as a bad marriage or an untimely death, rather than what you hope to get, is an easier method for finding happiness. Lowering or dampening expectations is another lifelong theme for both men. If you mix a good concept with expectations for irrational success, that’s a recipe for disaster. Said funnier, “If you mix raisins with turds, they are still turds.” Perhaps Buffett’s most famous quote is, “Be fearful when others are greedy and greedy when others are fearful.”
On Simplicity and Rationality
Warren Buffett and Charlie Munger couldn’t make their exceptional investing abilities seem any simpler if they tried. Despite the mass amounts of data and information Buffett absorbs on a daily basis, he is able to keep things relatively simple. This is remarkable to consider when more information has a tendency to make things more confusing. Buffett and Munger are famously casual and blunt about their approach, and they see no great mystery in it, despite their extraordinary success. They have always focused on big ideas—good, understandable businesses, quality people, the value of opportunity costs, and the value of thinking independently. The wit from these two men surrounding such principles is endless: “If you were going to buy a parachute, you wouldn’t necessarily take the low bid.” “The most important thing to do if you find yourself in a hole is to stop digging.” “There’s seldom one cockroach in the kitchen.” Or, in borrowing a quote from Yogi Berra, “You can observe a lot just by looking.” They rarely, if ever, seem to lose sight of what’s simple and what remains true, despite all that changes in the world every day, month, year, decade. Buffett believes investing is a game of rationality and temperament, or emotional stability when the market constantly tempts otherwise.
On Staying Humble
Buffett and Munger have commented on various occasions that IQ is a measure to be wary of. One joked that he’d rather be with a guy with an IQ of 130 who thinks it is 128 than a guy with an IQ of 190 who thinks it is 240. This just feels true; the first guy might not be the smartest in the room, but the second guy is a fool, which is a lot more dangerous. For Buffett, staying in your own lane or circle of competence is key, and they have countless quips about this ranging from a willingness to play any game with Bobby Fischer except chess to not needing to throw the shot put to win the gold medal in the 100 meter. The key for them has always been knowing and respecting the edge of their circle of competence, as well as being open to constructive criticism and learning from mistakes, which they believe Berkshire Hathaway was built on. Munger in particular was obsessed with effective rationality: “For the man with the hammer, every problem looks like a nail,” and an interdisciplinary approach to solving problems helps avoid that propensity for irrationality.
Buffet is also known for his thought experiment about the “ovarian lottery.” Buffett recognizes that when he and Munger were born, the odds were over 30-to-1 against being born in the United States. Therefore, just winning that portion of the lottery was an incredible win, let alone being born a white male in an era where women had very little opportunity, in a house where his intelligent parents talked about interesting things and sent him to decent schools. “In Afghanistan, we wouldn’t be worth a damn. We’d be giving talks, and nobody’d be listening.” I would argue this level of self-awareness and lack of ego among successful people is rare and noteworthy.
On Learning
Just because Buffett isn’t shy about recognizing the limits to his knowledge doesn’t mean he isn’t constantly working to expand his circle of competence, which Munger believed is the true secret to Buffett’s success. Buffett claims to have read every investment book in the Omaha public library by the time he was 10 years old, and that he has always spent the majority of his workday reading everything he can get his hands on (except analyst reports). Munger said something that I’m going to harp on with my own kids: “We’re here to go to sleep each day smarter than when we woke up.” There is knowledge to be gained everywhere, so learn something new every day in order to build your knowledge database over your lifetime.
On Investing in Yourself
The very best investment you can make is in yourself, and you are your very best asset. Another concept I look forward to driving home with my kids is their lesson for young people about the genie and the car. Imagine a genie appears before you when you’re 17 and tells you he’ll give you any car you want. If you’re smart, you’ll know there’s a catch. And the catch is that it’s the last car you’re ever going to get, so it has to last a lifetime. Buffett explains the approach he would have taken with the car and the genie: he would have read the manual ten times, he would have kept it in the garage, he would have changed its oil twice as often as he needed to, he would have fixed any dent right away to avoid rust, and he would generally care for the car as if it were his own baby. Well, here’s the lesson: the car is an analogy for your mind and your body. You only get one, and it has to last a lifetime, so maintenance is key. Develop good habits when you’re young to enhance your life and avoid having a wreck at age 70. Buffett, despite all of his financial success, knows that none of it would have ever mattered without his health and relationships with the people he loves. I’m letting that be a wonderful reminder as I embark on this busy holiday season with family and friends, and I wish the same for all of you.
Disclosures: This material is for informational purposes only and is not intended to provide specific investment, legal, tax, or financial advice. The views expressed herein are those of the author and do not necessarily reflect the views of the firm. Past performance is not indicative of future results. References to specific books, individuals, or third-party data (e.g., The Snowball by Alice Schroeder, University of Berkshire Hathaway by Daniel Pecaut, and J.P. Morgan Asset Management research) are for illustrative purposes only and do not constitute an endorsement or recommendation of any investment strategy, product, or service. The opinions and commentary regarding market trends and historical performance are based on current information and historical data, which are subject to change without notice. Investing involves risks, including the risk of loss. Investors should consult with their financial advisor to discuss their specific circumstances and investment goals. Any quotes or insights attributed to Warren Buffett, Charlie Munger, or other individuals are used to highlight general principles and do not constitute investment advice or an endorsement of any particular approach. The content provided is for educational and illustrative purposes. It is not a solicitation to buy or sell any securities or other financial instruments. Certain statements contained in this material may constitute forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those anticipated.
