The Practical Way

Friday, 12th March 2010

Charlie Munger on How to Get Rich

Written by George Traganidas Topics: Habits, Stock Investing

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1. Measure risk
All investment evaluations should begin by measuring risk, especially reputational.
In 2003-2007, investors loved banks because they were big and made lots of money. What few asked was how much risk they were taking on. Those who properly analyze how much risk the run-ups have added will end up happiest.

2. Be independent
Only in fairy tales are emperors told they’re naked.
Maybe the hardest part of investing is that the greatest odds of being right come when most think you’re wrong, and vice versa.[...]

Thursday, 25th February 2010

How We Can Restore Confidence

Written by George Traganidas Topics: Articles, Stock Investing

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The Washington Post
By Charles T. Munger
February 11, 2009

Our situation is dire. Moderate booms and busts are inevitable in free-market capitalism. But a boom-bust cycle as gross as the one that caused our present misery is dangerous, and recurrences should be prevented. The country is understandably depressed — mired in issues involving fiscal stimulus, which is needed, and improvements in bank strength. A key question: Should we opt for even more pain now to gain a better future? For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes.[...]

Thursday, 25th February 2010

Basically, It’s Over

Written by George Traganidas Topics: Articles, Stock Investing

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Slate
By Charles Munger
Sunday, Feb. 21, 2010

In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature’s bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island “Basicland.”

The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.[...]

Tuesday, 8th December 2009

Warren Buffett Investment Lessons, part 7

Written by George Traganidas Topics: Stock Investing

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How he runs Berkshire Hathaway

In 1992, Warren Buffett say that Berkshire’s after-tax overhead costs are under of 1% of reported operating earnings and less than 1/2 of 1% of look-through earnings. In 1996, the after-tax headquarters expense amounts to less than two basis points (1/50th of 1%) measured against net worth.

Warren Buffett does not believe in flexible operating budgets, as in “Non-direct expenses can be X if revenues are Y, but must be reduced if revenues are Y – 5%”. In addition, it makes no sense to add unneeded people or activities because profits are booming, or cutting essential people or activities because profitability is shrinking.[...]