Sunday, December 16th, 2012

“Alienate the Non-Prospect” to Truly Dominate Your Market

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Is attracting people to your product always a good idea?

No!

No, attracting potential customers isn’t always a good idea because there is a cost to attracting certain prospects.

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Thursday, May 12th, 2011

The Top 100 Mental Models Needed To Succeed In Business

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I’m fascinated by these models, and their application to business (not just investing) and life, and decided to keep a list of ones I run across (some are related to Munger and others I’ve learned about elsewhere (but believe Munger might appreciate)).

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Sunday, April 10th, 2011

Are These 7 Items Pointing To A Coming Economic Armageddon?

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I’m an optimist by nature but — hopefully you see that through the rest of my articles here — but I’m also practical.

And there’s a weird amount of $hit going on in the U.S. and abroad these days that’s got me preparing for a possible economic meltdown.

And I’m not talking about the staggering U.S. federal deficit — that’s got serious longer-term consequences. I’m talking about a handful of other scary items that worry me more in the short-term. …

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Saturday, February 19th, 2011

The 20 Best Business Books Of All Time

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My brother-in-law Rich recently asked me for my favorite business book. I had a tough time answering because a slew of book titles raced through my mind.

Well, make room on your bookshelf because I dove in and came up with 20 top business books below:

The Best Business Books Of All Time

1) Poor Charlie’s Almanack

If I had to pick just one business book for folks to read, it would be this illustrated tome by Charlie Munger — Warren Buffett’s long-time right-hand man — with its folksy and entertaining tales of business and life (see Charlie Munger Quotes for a taste).

There’s plenty of Buffett tips in here too so you get two-for-one! …

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Wednesday, February 3rd, 2010

What You Ought To Know About Buffett & Munger’s Four Filters Invention

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You guys know I love Charlie Munger and Warren Buffett… I consider them American hereos.

I read an interesting book called The Four Filters Invention of Warren Buffett and Charlie Munger (by Bud Labitan) the other day — if you like business, investing or Buffett or Munger, you should buy this book.

I thought I’d briefly summarize their “Four Filters” below — I paraphrase Bud Labitan’s book at times and add in a dose of quotes I’ve collected (see my past postings on Charlie Munger Quotes or Warren Buffett Quotes) as well as some quotes and insights from other folks.

The Four Filters Invention

1) Understandable First-Class Businesses

• Use The “Scuttlebutt Approach” — Go out and talk to a company’s customers, suppliers and competitors to find out how the industry really works (Philip Fisher wrote about this in Common Stocks and Uncommon Profits (thanks for correcting me, Santosh!)
• Treat Any Investment As If You Owned Only That The Rest of Your Life
• “To understand a business, figure out what results it is achieving, why it is getting those results, and what could happen to change what is causing those results.” — Charlie Munger
• Keep it Simple — Charlie Munger is fond of saying: “We just throw some decisions into the ‘too hard’ file and go onto the others.”
• Read as much as you can about businesses — Buffett and Munger recommend reading annual reports and The New York Times Century of Business by Floyd Norris and Christine Bockelmann)
• “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.” — Charlie Munger

Circle of Competence

Buffet advises investors to focus on their “circle of competence” (that which they know the most about).

“Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times.” — Warren Buffett

2) Enduring Competitive Advantages (Favorable long-term economics) (aka “A Protective Moat Around Their Economic Castles”)

Michael Porter suggests that there are two major types of competitive advantages:

1. A Cost Advantage

2. A Differentiation Advantage

“Something Special in People’s Minds”

Buffett and Munger have simplified this to “something special in people’s minds.”

“American Express has financial integrity; there’s worldwide acceptance of its name. It holds two-thirds of the market while charging more for its product…you have something special in people’s minds.” — Buffett at Berkshire’s 2000 Annual Meeting

“A Moat Around Their Economic Castles.”

“We look for moats around the castle. We think in terms of moats and the impossibility of crossing it — we want it widened every year. If it’s too narrow, we leave it alone.” Buffett at Berkshire’s 2000 Annual Meeting

The strong consumer brands of CocaCola and Gilette (later bought by Proctor and Gamble) were examples that Buffett gave in his 1993 Letter to Shareholders: “The might of their brand names, the attributes of their products and the strength of their distribution systems give them an enormous competitive advantage…”

Here’s another classic Buffett quote on the topic: “I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years time. Take Wrigley’s chewing gum. I don’t the think the Internet is going to change how people chew gum.”

3) First-Class Management

• Only Work With Good People — “You can’t make a good deal with a bad person” — The Tao of Warren Buffett
• They Should Be Able & Trustworthy — “Ability will get you to the top, but takes character to keep you there.” — Abraham Lincoln
• Good Question To Answer: Does Management Have “Skin in the Game — A CEO should have at least one year’s salary worth of his own money in stock in the company they are running, according to Pick Stocks Like Warren Buffett by J.K.Lasser.
• Management Should Have Their Own “Checklist” — “No wise pilot, no matter how great his talent and experience, fails to use his checklist.” — Munger

4) A Bargain Price

“We look for a horse with a one in two chance of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing. Charlie Munger from Poor Charlie’s Almanack.

Margin of Safety — Benjamin Graham called this “margin of safety” — that is, the difference between the intrinsic value of a business versus what the asking price is.

How do you calculate intrinsic value?

Well, I recommend digging into Ben Graham’s Intelligent Investor book for the real details…but if you want a neat little formula than check out this Warren Buffett Intrinsic Value Calculator.

Patience For A Sensible Price Tag — Munger & Buffett refer to waiting for the “fat pitch.” Be very patient, but be very aggressive when it’s time.

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Monday, October 12th, 2009

Warren Buffett Quotes

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I’ve been into motivational business quotes lately and I was reading the Tao of Warren Buffett (which I highly recommend!) and it reminded of the great quotes Mr. Buffett has shared.

Here are some of my favorite Buffett quotes:

How to define friendship …

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Saturday, October 10th, 2009

30+ Charlie Munger Quotes!

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I’m a huge fan of Charles T. Munger (aka “Warren Buffett’s right-hand man”) — I named  Poor Charlie’s Almanack the #1 book in The 20 Best Business Books Of All Time because I find myself quoting and utilizing his knowledge all the time.

In the mean time, here are some of my favorite Charlie Munger quotes:

1. Never, ever, think about something else when you should be thinking about the power of incentives. (For more on incentives, see  my articles on the Incentives Mental Model and  “Are Cubbie Fans The Reason The Cubs Have Sucked For 100+ Years?”)
2. Almost all good businesses engage in ‘pain today, gain tomorrow’ activities.
3. Spend each day trying to be a little wiser than you were when you woke up.
4. 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.
5. Choose clients as you would friends.
6. The best armour of 0ld age is a well-spent life preceding it.
7. When you borrow a man’s car, always return it with a tank of gas.
8. If only I had the influence with my wife and children that I have in some other quarters!
9. Take a simple idea and take it seriously.
10. In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables — like the discount warehouses of Costco.
11. Don’t do cocaine. Don’t race trains. And avoid AIDS situations.
12. We look for a horse with one chance in two of winning and which pays you three to one.
13. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.
14. It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.
15. A great business at a fair price is superior to a fair business at a great price.
16. All intelligent investing is value investing — acquiring more than you are paying for.
17. You must value the business in order to value you the stock.
18. No wise pilot, no matter how great his talent and experience, fails to use his checklist.
19. There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.
20. …it never ceases to amaze me to see how much territory can be grasped if one merely masters and consistently uses all the obvious and easily learned principles.
21. Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying eighteen percent.
22. If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.
23. Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.
24. You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.
25. Three rules for a career: 1) Don’t sell anything you wouldn’t buy yourself; 2) Don’t work for anyone you don’t respect and admire; and 3) Work only with people you enjoy.
26. I won’t bet $100 against house odds between now and the grave.
27. I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.
28. …being an effective teacher is a high calling.
29. I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…
30. Without numerical fluency, in the part of life most of us inhibit, you are like a one-legged man in an ass-kicking contest.
31. In my life there are not that many questions I can’t properly deal with using my $40 adding machine and dog-eared compound interest table.
32. Perhaps the most important rule in management is to get the incentives right. (source: Poor Charlie’s Almanack)
33. I do not think you can trust bankers to control themselves. They are like heroin addicts (source: CNBC interview May 2013)
34. The best thing a human being can do is to help another human being know more.”“The best thing a human being can do is to help another human being know more.

 

 

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