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The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

Buy your copy of the book Morgan Housel calls “a masterpiece.” It contains 50 timeless ideas – from Lord Krishna to Charlie Munger, Socrates to Warren Buffett, and Steve Jobs to Naval Ravikant – as they apply to our lives today. Click here to buy now.

Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought

Mohnish Pabrai, the famed investor whom I interviewed in the fourth episode of The One Percent Show, has a lot of lessons to share that he learned from the charity lunch with Warren Buffett he won in 2007. One of the best insights for me, which Warren shared with Mohnish, was about the story of Rick Guerin, who was Warren’s and Charlie Munger’s partner in the 1970s.

Warren had even praised Rick Guerin in his 1984 essay titled “The Superinvestors of Graham-and-Doddsville,” in which he outlined famous value investors and their performances. Warren included in the essay the following table which summarized the performance of Rick’s fund Pacific Partners –

But then, Rick pretty much disappeared off the map, and today not many people know of him as must as they know of Warren and Charlie.

So, when Mohnish asked Warren during the lunch, “Whatever happened to Rick Guerin?” the latter replied something on these lines –

Charlie and I always knew that we would become incredibly wealthy. But we were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry. And so actually what happened was that in the 1973-74 downturn, Rick was levered with margin loans. And the stock market went down almost 70% in those two years, and so he got margin calls, and he sold his Berkshire stock to me. I bought Rick’s Berkshire stock at under $40 apiece, and so Rick was forced to sell shares at … $40 apiece because he was levered.

Warren then gave Mohnish this invaluable advice –

If you’re an even slightly above average investor who spend less than they earn, over a life time you cannot help but get rich, if you are patient.

No one else has ever taught about the dangers of leverage and impatience the way Warren taught Mohnish in that one lunch outing.

Rick’s is just one of the many forgotten stories in the stock market, which could have had much better endings but for greed and impatience.

Look around you, open your inbox, or browse through you Twitter, YouTube feeds, and you will hear stories of people in a hurry, trying to get rich in the stock market or otherwise, with seemingly little effort (and then teaching the world how to get rich fast). The fact is that we now live in a society that promotes immediate gratification.

However, the lesson from the likes of Warren, Rick, and even Mohnish is that to do really well as an investor, you just need these four attributes – be slightly above average, spend less than you earn, invest your savings well, and be patient with your investments.

Then, as Warren says, over a lifetime, you cannot help but get rich.

P.S. Except for the investing mistake that cost him dearly, Rick was admired by Warren and Charlie. Read Charlie’s thoughts about Rick in the latter’s obituary. Another lesson here – you won’t be remembered for your investing successes or failures as much as you would be remembered for the person you were. Another reason to stop taking investing so seriously, and spending a much greater time being that good person who will leave the world a better place than he/she found.


A Super Text

The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of the arc. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back.

Investment markets follow a pendulum-like swing between euphoria and depression, between celebrating positive developments and obsessing over negatives, and thus between overpriced and underpriced.

There are a few things of which we can be sure, and this is one: Extreme market behavior will reverse. Those who believe the pendulum will move in one direction forever—or reside at an extreme forever—eventually will lose huge sums. Those who understand the pendulum’s behavior can benefit enormously.

~ Howard Marks – Memo to Clients – July 2004


An Article

Peter Lynch Vs Index Funds

Lynch, 77, told Bloomberg that the wholesale move of investors in recent decades from actively managed mutual funds to passive investing — that is, index funds — is “a mistake.” He said, “Our active guys have beat the market for 10, 20, 30 years, and I think they’ll keep on doing it.”

Lynch’s remarks play into the enduring debate about which is better for investors, active management or passive, and under what circumstances. If his remarks are taken as advice at face value, then they’re a disservice to the average retail investor.

That’s because the debate has long since been resolved by reality: Active investment managers consistently fail to match or exceed the benchmark indices of their funds. Passively managed index funds, by definition, always hit their benchmarks.


A Quote

When we think about intrinsic value, it is always a rough guess. In my mind, if I throw out a number to you such as ‘I think intrinsic value for this stock is 100,’ What I’m really saying, and the way we internally use that statement is ‘it’s 100, give or take 10% to 15%. It might be 85, it might be 115.’ It’s 100 with implied error bars around the statement.

~ Ken Shubin Stein


A Question

You want to get rich. Good. But are you in a hurry? (if no, good; if yes, read about Rick Guerin above)


That’s about it from me for today.

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Stay safe.

Regards, Vishal





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