Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life by William Green

My Score – 10/10

This is a great book for everyone from beginner to advanced. Stop what you’re reading and read this instead.


  • Green doesn’t just interview but gets to know the masters of investing and passes on their greatest lessons to anyone who’s willing to read.

  • Most investing books focus on the minutiae. There’s a time and place for it, but this book takes a much wider view.


  • Not long enough. Most books are too much fluff, this one is the opposite. Not a small book, but the amount of wisdom per page is extreme. Take your time reading this one.

Favorite Quote

This practice of intentional disconnection may seem perverse in a culture that prizes instant access to infinite information. But Sleep and Zakaria disavowed the standard game of ceaselessly collecting data and betting on what it might portend for stocks in the near term. They wanted to think in peace, undisturbed by the popular obsession with what Sleep termed “wiggle guessing.” It requires uncommon conviction to disregard what most of your peers consider significant. But once they’d decided to shut off the noise from Wall Street, they felt joyously liberated. “It’s like a voice in your head [that’s] chattering away all the time,” says Sleep. “Stop listening to it and you’ll be fine.” So how did they spend their time? “We just read annual reports until we were blue in the face and visited every company we possibly could until we were sick of it.” Sleep traveled so much that he filled every page of a supersize passport and had to order another. When they analyzed companies and interviewed CEOs, Sleep and Zakaria probed for insights with a long shelf life. They sought to answer such questions as What is the intended destination for this business in ten or twenty years? What must management be doing today to raise the probability of arriving at that destination? And what could prevent this company from reaching such a favorable destination? They referred to this way of thinking as “destination analysis.”

Is this company strengthening its relationship with customers by providing superior products, low prices, and efficient service? Is the CEO allocating capital in a rational way that will enhance the company’s long – term value? Is the company underpaying its employees, mistreating its suppliers, violating its customers’ trust, or engaging in any other shortsighted behavior that could jeopardize its eventual greatness?

“There was something a little provocative about the whole thing,” says Zakaria. “Could you set up an investment outfit which is not about the money? It’s about doing everything right.”

An obvious solution to this reinvestment risk was to buy and hold higher – quality businesses that were more likely to continue compounding for many years.

Main takeaway

Investing is a wonderful game where, if we win, we can provide for the ones we love, and make the world a better place through leverage of capital. We often see people with a lot of money doing stupid things but the vast majority of people with money do some amazing things. Pabrai started a foundation of schools that help bring people out of poverty through education. Just unreal. Helping people is the ultimate payoff for a life of investing well.

Similar Reads

These books are similar in a few ways, but Green stands out in that he’s sharing from other masters. The book reads like it was written by itself. The below reads are still very good though.

Introduction: Inside the Minds of the Greatest Investors

the greatest investors are intellectual mavericks. They’re not afraid to question and defy conventional wisdom. They profit from the misperceptions and mistakes of people who think less rationally, rigorously, and objectively. In fact, one of the best reasons to study the investors spotlighted in this book is that they can teach us not only how to become rich, but how to improve the way we think and reach decisions.

I’ve come to think of the best investors as an idiosyncratic breed of practical philosophers. They aren’t trying to solve those abstruse puzzles that mesmerize many real philosophers, such as “Does this chair exist?” Rather, they are seekers of what the economist John Maynard Keynes called “worldly wisdom,” which they deploy to attack more pressing problems, such as “How can I make smart decisions about the future if the future is unknowable?”

it’s helpful to view investing and life as games in which we must consciously and consistently seek to maximize our odds of success. The rules are elusive and the outcome uncertain. But there are smart ways to play and dumb ways to play.

Chapter One: The Man Who Cloned Warren Buffett

A wise man ought always to follow the paths beaten by great men, and to imitate those who have been supreme, so that if his ability does not equal theirs, at least it will savor of it.—Niccolò Machiavelli

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.—Charlie Munger

One Up on Wall Street by Peter Lynch while killing time in Heathrow Airport.

“ideas worth cloning.”

keep observing the world inside and outside your industry, and when you see someone doing something smart, force yourself to adopt it.” Pabrai

“I want to play games that I know I can win,” says Pabrai. “So how do you win the game? You’ve got to play according to the rules. And the good news is, I’m playing against players who don’t even fucking know the rules.”

First, whenever you buy a stock, you’re purchasing a portion of an ongoing business with an underlying value, not just a piece of paper for speculators to trade.

There are no prizes for frenetic activity. Rather, investing is mostly a matter of waiting for these rare moments when the odds of making money vastly outweigh the odds of losing it.

As Buffett has said, “You don’t have to swing at everything—you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’

“The number one skill in investing is patience—extreme patience.”

Blaise Pascal: “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

it helps that his investment staff consists of a single person: him. “The moment you have people on your team, they’re going to want to act and do things, and then you’re hosed.” In most fields, a hunger for action is a virtue. But as Buffett said at Berkshire’s 1998 annual meeting, “We don’t get paid for activity, just for being right.”

Pabrai adopted the same fee structure, reasoning that this alignment of interests made it an “honorable way to do business.” A good fee structure

Buffett has said, “The difference between successful people and really successful people is that really successful people say no to almost everything.”

simplicity rules.

I ask Pabrai why more people don’t clone in his systematic way. Between mouthfuls of a dish called “spicy beef danger,” he replies, “They’re not as shameless as me. They have more ego. To be a great cloner, you have to check your ego at the door.”

“Heads, I win. Tails, I don’t lose much.”

Be patient and selective, saying no to almost everything. Exploit the market’s bipolar mood swings. Buy stocks at a big discount to their underlying value. Stay within your circle of competence. Avoid anything too hard. Make a small number of mispriced bets with minimal downside and significant upside.

Buffett said, “If you’re even a slightly above average investor who spends less than you earn, over a lifetime you cannot help but get very wealthy.” Pabrai says this morality tale about the perils of leverage and impatience has been “seared” into his brain: “Right there, the Buffett lunch was worth it.”

Buffett explained that he and Munger always measure themselves by “an inner scorecard.” Instead of worrying how others judge them, they focus on living up to their own exacting standards.

As Pabrai saw it, “Probably ninety-nine percent of people on this planet wonder what the world thinks of them.” A tiny minority take the opposite view, which he poetically expressed as follows: “Fuck what the world thinks.”

He avoids meeting the CEOs of companies that he’s analyzing because he thinks their talent for selling makes them an unreliable source of information—a policy he cloned from Ben Graham.X

“Munger says he doesn’t care about being rich. What he really cares about is having independence. I fully endorse that. What the money gives you is the ability to do what you want to do in the way you want to do it.… And that’s a tremendous benefit.”

Hawkins argues that “true power” stems from traits such as honesty, compassion, and a dedication to enhancing other people’s lives. These powerful “attractors” have an unconscious effect on people, making them “go strong,” whereas traits such as dishonesty, fear, and shame make them “go weak.” Pabrai took one specific lesson from Hawkins and determined to live by it. “You can’t get away with lying to other humans,” says Pabrai, “and that’s a very profound idea.”

“Compounding is a very simple idea. Cloning is a very simple idea. Telling the truth is a very simple idea,” he says. But when you apply a handful of powerful ideas with obsessive fervor, the cumulative effect “becomes unbeatable.” The trouble is, most people dabble half-heartedly when they find an idea that works. Pabrai cannot conceal his contempt: “These fucking humans listen and say, ‘Oh, yeah, that makes sense. Whatever. So what? I’ll try to incorporate it.’ And you know, that fucking doesn’t work. You’ve got to go ten thousand percent or not at all!”

“Once you have a sense that life is meaningless, what should you do? Not fuck up life for other people. Leave the planet a better place than you found it. Do a good job with your kids. The rest of it is a game. It doesn’t matter.”

  • Rule 1: Clone like crazy.

  • Rule 2: Hang out with people who are better than you.

  • Rule 3: Treat life as a game, not as a survival contest or a battle to the death.

  • Rule 4: Be in alignment with who you are; don’t do what you don’t want to do or what’s not right for you.

  • Rule 5: Live by an inner scorecard; don’t worry about what others think of you; don’t be defined by external validation.

“Take a simple idea and take it seriously.”

Chapter Two: The Willingness to Be Lonely

The only way to beat the market is to diverge from the market. That’s a task best suited to people who are, quite literally, extraordinary—both intellectually and temperamentally.

First of all, said Templeton, beware of emotion: “Most people get led astray by emotions in investing. They get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.”

Second, said Templeton, beware of your own ignorance, which is “probably an even bigger problem than emotion.… So many people buy something with the tiniest amount of information. They don’t really understand what it is that they’re buying.”

Fifth, said Templeton, the best way to find bargains is to study whichever assets have performed most dismally in the past five years, then to assess whether the cause of those woes is temporary or permanent.

Sixth, said Templeton, “One of the most important things as an investor is not to chase fads.”

What I failed to learn from Templeton two decades ago is the supreme importance of this inner game.

Chapter Three: Everything Changes

prepare for the future instead of fooling ourselves into believing we can predict it.

First, Be Lucky. Second, Be Humble

But as Marks sees it, “The screwiest thing you can do is to think you’re a Master of the Universe. We’re all just little cogs, and the universe will go on without us. We have to fit into it and adapt to it.”

One way that Marks keeps his own ego in check is by reminding himself of the starring role that luck has played in his life.

Marks drew a simple but life-changing lesson from these academic debates: if he wanted to add value as an investor, he should avoid the most efficient markets and focus exclusively on less efficient ones.

Any asset, however ugly, can be worth buying if the price is low enough. Indeed, Marks believes that “buying cheap” is the single most reliable route to investment riches—and that overpaying is the greatest risk. Thus, the essential question to ask about any potential investment should be “Is it cheap?”

“I’m convinced that everything that’s important in investing is counterintuitive, and everything that’s obvious is wrong.”

“Look, luck is not enough,” he says. “But equally, intelligence is not enough, hard work is not enough, and even perseverance is not necessarily enough. You need some combination of all four. We all know people who were intelligent and worked hard but didn’t get lucky. It breaks my heart. People come to me all the time looking for jobs. They’re fifty years old, they lost their job, and they’re no less deserving.”

John Kenneth Galbraith, an intellectual hero of his, who said, “We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know.”

Amos Tversky, an Israeli psychologist who studied cognitive biases alongside Daniel Kahneman: “It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on.”

the future is influenced by an almost infinite number of factors, and so much randomness is involved that it’s impossible to predict future events with any consistency. Howard marks

Trees have never grown to the sky. They may someday. I’m not going to bet on it.”

When analyzing any asset, what Marks wants to know, above all, is “the amount of optimism that’s in the price.”

“The cautious seldom err or write great poetry.”

“We have to accommodate to the fact that the environment changes.”

The novelist Henry James wrote that life is “all inclusion and confusion,” while art is “all discrimination and selection.” Discuss. As a writer, I love this idea that the artist’s mission is to find order within the all-inclusive confusion and muddle of life. James likened this search for hidden structure to a suspicious dog’s efforts to sniff out “some buried bone.” The investor faces a similar challenge: life is endlessly confusing and complicated. But what if we could detect some underlying patterns within that infinitely complex web? Then, we might have more success in figuring out what the future has in store for us. Marks has a rare gift for identifying cyclical patterns that have occurred again and again in financial markets. Once we understand these patterns, we can avoid being blindsided by them and can even profit from them.

He compares these patterns to the swinging of a pendulum from one extreme to the other.

The future may be unpredictable, but this recurring process of boom and bust is remarkably predictable. Once we recognize this underlying pattern, we’re no longer flying blind.

Behavioral economists use the term recency bias to describe the cognitive glitch that leads us to overweight the importance of our recent experiences.

“You can’t know the future,” says Marks, but “it helps to know the past.”

As Marks explains, the risk is highest when risk tolerance is most extreme—a paradox that he calls “the perversity of risk.”

“All my processes are intuitive, instinctual, gut,” he says. “I just try to develop a sense. What’s really going on in the world? And what are the important inferences from what you can observe?”

Are investors appropriately skeptical and risk averse or are they ignoring risks and happily paying up? Are valuations reasonable relative to historical standards? Are deal structures fair to investors? Is there too much faith in the future?

As Marks often says, “The environment is what it is.” We can’t demand a more favorable set of market conditions. But we can control our response, turning more defensive or aggressive depending on the climate.

There’s nothing quite like having cash when others are gasping for it.

“Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”

The importance of admitting that we can’t predict or control the future. The benefits of studying the patterns of the past and using them as a rough guide to what could happen next. The inevitability that cycles will reverse and reckless excess will be punished. The possibility of turning cyclicality to our advantage by behaving countercyclically. The need for humility, skepticism, and prudence in order to achieve long-term financial success in an uncertain world.

Instead of trying to predict the unpredictable, Marks suggests that we focus on building “unfragile portfolios and unfragile lives” that are unlikely to collapse even in dire conditions.VI What does that mean for regular investors? “Avoid a lot of debt and leverage,” and don’t let your dreams of a “bonanza” lead you to “expose yourself to the possibility of a catastrophe,” he says. “Not trying to maximize is an important component in preparing for what life may throw at you, and that’s true in investing and living. So the question is, do you push the limits?”

Freedom comes from “clearly knowing” that everything is ephemeral and training ourselves to stop grasping at what is inherently unstable.

Given that everything changes, we shouldn’t get too carried away when times are good or too despondent when they’re bad.

“I don’t have any grand ambitions,” says Marks. “My life is terrific. I want to be a good husband, father, grandfather. And I want to keep seeing things in the investment world that other people don’t see and describing them clearly for my clients.”

Chapter Four: The Resilient Investor

“Because the future is uncertain, you want to minimize your risk,” says Eveillard.

In a preface to The Intelligent Investor, Buffett wrote, “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

Horace: “Many shall be restored that now are fallen and many shall fall that now are in honor.”

Eveillard operated from a position that was structurally unsound. First, he was at the mercy of his investors, since they could redeem their shares daily, forcing him to sell stocks when they were cheapest, instead of buying them. Their wayward emotions and erratic judgment posed an external threat over which he had no control. Second, he was acutely vulnerable to pressures from inside his own firm, including his colleagues’ concern that he threatened their financial interests by refusing to invest in tech. Even worse, he served at the pleasure (or displeasure) of his corporate masters. He wasn’t in charge.

Following Buffett’s lead, we should always keep enough cash in reserve so we’ll never be forced to sell stocks (or any other beleaguered asset) in a downturn. We should never borrow to excess because, as Eveillard warns, debt erodes our “staying power.” Like him, we should avoid the temptation to speculate on hot stocks with supposedly glorious growth prospects but no margin of safety. And we should bypass businesses with weak balance sheets or a looming need for external funding, which is liable to disappear in times of distress.

Kahn’s answer: “Investing is about preserving more than anything. That must be your first thought, not looking for large gains. If you achieve only reasonable returns and suffer minimal losses, you will become a wealthy man and will surpass any gambler friends you may have. This is also a good way to cure your sleeping problems.” As Kahn put it, the secret of investing could be expressed in one word: “safety.” And the key to making intelligent investment decisions was always to begin by asking, “How much can I lose?”

Kahn’s defensive mindset reminds me of the warning that’s pounded into the heads of medical students: “First, do no harm.” For investors, that instruction requires a minor tweak: First, do no self-harm. When we try to explain investment success, we’re naturally drawn to racier aspects of the game. It’s more fun to tell tales of bold bets that earned billions than to drone on about all of the accidents that never happened. But accident avoidance matters because it’s so hard to recover from disaster. Consider the brutal mathematics of financial loss: if you lose 50 percent on an ill-considered bet, you’ll need a 100 percent gain just to get back to where you started.

McLennan’s voracious reading led him to the same wary conclusion that Graham and Eveillard had reached: The future is so “intrinsically uncertain” that investors should focus heavily on avoiding permanent losses and building “a portfolio that can endure various states of the world.”

A dangerous blunder that investors repeatedly make is to assume that the period ahead will resemble the period they most recently experienced.

“You want to be structured to participate in the march of mankind, but to survive the dips along the way.”

There’s a counterintuitive elegance to this idea that, when it comes to investing, beauty often lies in mundanity, not glamour. Over the years, he’s detected the hidden allure of countless ugly ducklings—from a timberland company acquired during a cyclical downturn to a firm that rents uniforms. Not exactly Tesla.

On average, he holds these positions for the best part of a decade, trimming or adding to them as their valuations fluctuate. McLennan recognizes that all of these businesses are imperfect and some will disappoint. So he adds another layer of resilience by owning about 140 of them. Like Graham and Eveillard, he sees diversification as a vital component of an “error-tolerant” strategy that can survive his own mistakes, bad luck, and inability to see the future.VII

They succumb to the egotistical delusion that they can predict the future, instead of recognizing the limits of their knowledge. And they leap blindly into manias, their judgment fogged by “return envy” and the fear of missing out.

Once again, success stems from consciously resisting everything that promotes fragility.

Since 1979, the fund has averaged 12.46 percent a year, versus 9.35 percent for the MSCI World Index.VIII If you’d invested $ 100,000 in the Global Fund in 1979, it would have grown to $ 12.94 million in 2020, versus $ 4.05 million if you’d invested in the index—a difference of almost $ 9 million. That’s the beauty of compounding. Small advantages build over decades into an overwhelming margin of victory. The paradox is that Eveillard and McLennan hit the ball out of the park without ever swinging for the fences. McLennan attributes their success to a consistent focus on “risk mitigation,” “error elimination,” and “prudent acts of omission.” In essence, “it’s winning by not losing.”

In markets, as in life, so much hinges on our ability to survive the dips.

Five Rules for Resilience

  • First, we need to respect uncertainty.

  • Second, to achieve resilience, it’s imperative to reduce or eliminate debt, avoid leverage, and beware of excessive expenses, all of which can make us dependent on the kindness of strangers. There are two critical questions to ask: “Where am I fragile? And how can I reduce my fragility?”

  • Third, instead of fixating on short-term gains or beating benchmarks, we should place greater emphasis on becoming shock resistant, avoiding ruin, and staying in the game.

  • Fourth, beware of overconfidence and complacency.

    • Personally, if there’s anything I’m sure of, it’s that I’m irrational, ignorant, self-deluding, and prone to all of the behavioral mistakes I laugh at in others—including the perilous habit of trusting that the future will resemble the recent past.

  • Fifth, as informed realists, we should be keenly aware of our exposure to risk and should always require a margin of safety. But there’s an important caveat. We cannot allow our awareness of risk to make us fearful, pessimistic, or paranoid. Nietzsche warned, “Stare too long into the abyss and you become the abyss.”

Disruption brings profit.

Chapter Five: Simplicity Is the Ultimate Sophistication

The great paradox of this remarkable age is that the more complex the world around us becomes, the more simplicity we must seek in order to realize our financial goals.… Simplicity, indeed, is the master key to financial success.—Jack Bogle

Occam’s image of a razor captures the critical notion that we’re more likely to find the right answer by shaving away all unnecessary details. Albert Einstein agreed, observing, “All physical theories, their mathematical expressions apart, ought to lend themselves to so simple a description that even a child could understand them.” Lord Ernest Rutherford, the father of nuclear physics, reached a similar conclusion, reputedly remarking, “If a piece of physics cannot be explained to a barmaid, then it is not a good piece of physics.”

book titled Enough, “Financial institutions operate by a kind of reverse Occam’s razor. They have a large incentive to favor the complex and costly over the simple and cheap, quite the opposite of what most investors need and ought to want.”

When I interviewed Bogle in 2001, he pointed out that nothing could have been simpler than his theory that low-cost index funds would beat actively managed funds as a group, since the latter would be burdened by higher operating expenses and transaction costs. “When there’s a financial intermediary—a croupier—it takes a lot out of the market return,” he told me. “So index funds have to win. It was not complicated.” That elementary insight into the mathematical advantages of index funds proved so powerful that Vanguard’s assets have since grown to $ 6.2 trillion.V

The Art of Learning: An Inner Journey to Optimal Performance.

He concludes, “It is rarely a mysterious technique that drives us to the top, but rather a profound mastery of what may well be a basic skill set.”

But in financial markets, as in martial arts, victory doesn’t depend on dazzling displays of esoteric techniques. It depends on a firm grasp of the principles of the game and a deep mastery of basic skills. As Buffett has said, “Business schools reward difficult, complex behavior more than simple behavior. But simple behavior is more effective.”

Buffett himself is a grand master of simplification. Writing to his shareholders in 1977, he laid out his four criteria for selecting any stock: “We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.”

It’s notoriously difficult to outperform the market with a huge fund. But when we met in 2017, Danoff had the remarkable distinction of having whipped the S& P 500 over one, three, five, ten, and twenty-seven years. I was eager to uncover the subtle ingredients of his secret sauce. But he managed to sum up his entire investment philosophy in three words: “Stocks follow earnings.” With that principle in mind, he searches with relentless drive for “best-of-breed businesses” that he thinks will “grow to be bigger in five years.” Why? Because if a company doubles its earnings per share in the next five years, he believes the stock price is also likely to double (more or less). This generalization is easy to dismiss because it sounds suspiciously simplistic. But remember: investing isn’t like Olympic diving, where the judges award extra points for difficulty.

Danoff runs a finger along the fever lines on his chart and asks me what lesson they demonstrate. I reply, “The stock price is eventually going to follow the earnings.” His eyes open wide and he flashes me a joyous smile: “Exactly! Bingo! That’s what I’ve learned. Stocks follow earnings!”

We each need a simple and consistent investment strategy that works well over time—one that we understand and believe in strongly enough that we’ll adhere to it faithfully through good times and bad.

Once you realize that your entire mission is to value businesses and pay much less for them than they’re worth, it’s incredibly liberating. “If you see it that simply and can keep that simplicity in your mind, it’s very compelling and almost makes a lot of what else you see look silly,” says Greenblatt. “It kind of gets rid of ninety-nine percent of everything else that anyone had ever told me about how to look at the world and the market.”

Highly intelligent analysts at brokerage firms squander their time calculating next quarter’s corporate earnings to the exact penny—an absurd guessing game that’s irrelevant to successful, long-term investors.

“Choosing individual stocks without any idea of what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

Depending on the business, Greenblatt uses some combination of four standard valuation techniques. Method 1: he performs a discounted cash flow analysis, calculating the net present value of the company’s estimated future earnings. Method 2: he assesses the company’s relative value, comparing it to the price of similar businesses. Method 3: he estimates the company’s acquisition value, figuring out what an informed buyer might pay for it. Method 4: he calculates the company’s liquidation value, analyzing what it would be worth if it closed and sold its assets.

a fundamental truth that is one of the most dependable laws of the financial universe. In the short term, the market is irrational and frequently misprices stocks—but in the long term, it’s surprisingly rational. “Eventually,” says Greenblatt, “Mr. Market gets it right.”

Greenblatt’s ultraselective strategy meant that he routinely rejected stocks that looked good, not great. Likewise, if it was too difficult to value a particular business, he walked away. “I want to keep it easy for myself,” he says. “Maybe I’m a little lazier than most people. Or, at least, I’m trying to pursue things that are one-foot hurdles rather than ten-foot hurdles.”

“You size your positions based on how much risk you’re taking,” he says. “I don’t buy more of the ones I can make the most money on. I buy more of the ones that I can’t lose money on.”

Cheap + Good = The Holy Grail

Buffett added “one little, simple twist,” which “made him one of the richest people in the world: Buying cheap is great—and if I can buy good businesses cheap, even better.”

Buy good businesses at bargain prices. This combines the purified essence of Graham and Buffett.

he chose two metrics as a rough gauge of these essential traits. First, the company should have a high earnings yield—an indication that it generates lots of earnings relative to its price. Second, it should have a high return on tangible capital—an indication that it’s a quality business that effectively converts fixed assets and working capital into earnings.

If you want to become “a stock market master,” he explained, “stick to buying good companies (ones that have a high return on capital) and to buying those companies only at bargain prices (at prices that give you a high earnings yield).” He dubbed this simple combination of two winning traits “the magic formula.”

It’s not enough to find a smart strategy that stacks the odds in your favor over the long haul. You also need the discipline and tenacity to apply that strategy consistently, especially when it’s most uncomfortable.

  1. Stocks are ownership shares of businesses, which must be valued.

  2. They should be bought only when they trade for less than they are worth.

  3. In the long run, the market is rational and will (more or less) reflect the fair value of these businesses.

  • First, you don’t need the optimal strategy. You need a sensible strategy that’s good enough to achieve your financial goals.

  • Second, your strategy should be so simple and logical that you understand it, believe in it to your core, and can stick with it even in the difficult times when it no longer seems to work.

  • Third, you need to ask yourself whether you truly have the skills and temperament to beat the market.

  • Fourth, it’s important to remember that you can be a rich and successful investor without attempting to beat the market.

Personally, I am perennially torn between the mathematical logic of indexing and the dream of beating the market. But I know this much: whichever path we choose, it pays to keep it simple.

Chapter Six: Nick & Zak’s Excellent Adventure

Whether you’re mending a chair, sewing a dress, or sharpening a kitchen knife, he writes that there is “an ugly way of doing it” and “a high-quality, beautiful way of doing it.”

William James: “The art of being wise is the art of knowing what to overlook.”

One practical way of extricating themselves from this muck was to discard all of the sell-side research excreted by Wall Street. “We put it in a pile,” says Zakaria. “Every month or so, you start looking through, thinking, ‘I’m bored.’ So the whole lot would go in the bin.… It really was all just gossip and bits of nonsense, and we became very happy with the idea of not hearing it.” Likewise, Sleep and Zakaria told stockbrokers that it was pointless phoning them with sales pitches since they relied on their own research to reach independent conclusions. They also disengaged from the day-to-day action of the market by minimizing their use of a Bloomberg terminal. Fund managers often stare interminably at a wall of four monitors flashing real-time data and financial news at them. The Bloomberg, which costs about $ 24,000 a year to rent, is a status symbol among professional investors. But to this day, Sleep and Zakaria relegate their single Bloomberg monitor to a short side table without a chair. “It was meant to be uncomfortable,” says Zakaria. “Nick wanted it on a low table because you could only spend five minutes without thinking, ‘Oh, my back’s killing me,’ and you move on.”

This practice of intentional disconnection may seem perverse in a culture that prizes instant access to infinite information. But Sleep and Zakaria disavowed the standard game of ceaselessly collecting data and betting on what it might portend for stocks in the near term. They wanted to think in peace, undisturbed by the popular obsession with what Sleep termed “wiggle guessing.” It requires uncommon conviction to disregard what most of your peers consider significant. But once they’d decided to shut off the noise from Wall Street, they felt joyously liberated. “It’s like a voice in your head [that’s] chattering away all the time,” says Sleep. “Stop listening to it and you’ll be fine.” So how did they spend their time? “We just read annual reports until we were blue in the face and visited every company we possibly could until we were sick of it.” Sleep traveled so much that he filled every page of a supersize passport and had to order another. When they analyzed companies and interviewed CEOs, Sleep and Zakaria probed for insights with a long shelf life. They sought to answer such questions as What is the intended destination for this business in ten or twenty years? What must management be doing today to raise the probability of arriving at that destination? And what could prevent this company from reaching such a favorable destination? They referred to this way of thinking as “destination analysis.”

Is this company strengthening its relationship with customers by providing superior products, low prices, and efficient service? Is the CEO allocating capital in a rational way that will enhance the company’s long-term value? Is the company underpaying its employees, mistreating its suppliers, violating its customers’ trust, or engaging in any other shortsighted behavior that could jeopardize its eventual greatness?

“There was something a little provocative about the whole thing,” says Zakaria. “Could you set up an investment outfit which is not about the money? It’s about doing everything right.”

An obvious solution to this reinvestment risk was to buy and hold higher-quality businesses that were more likely to continue compounding for many years.

Sleep and Zakaria started searching for other businesses run by farsighted managers whom they could trust to keep building wealth over time. “If they’re thinking rationally and thinking about the long term,” says Sleep, “you can subcontract the capital allocation decisions to them. You don’t have to be buying and selling shares.” They also began to wonder what characteristics account for the success of companies with unusually long shelf lives, and they would reach the revelatory conclusion that one business model may be more powerful than all the rest. Their term for it is scale economies shared. The company that introduced them to this model was Costco Wholesale, an American discount retailer that embodied everything they sought in a business. When they first invested in Costco in 2002, its stock had tumbled from $ 55 to $ 30 amid concerns about the company’s low profit margins. But Sleep and Zakaria saw underappreciated strength in Costco’s fanatical focus on delivering value to shoppers. At the time, its customers paid a $ 45 annual membership fee, which gave them access to warehouses filled with dependable products sold at the lowest-possible prices. Costco marked up its goods by no more than 15 percent above cost, while a typical supermarket might mark up prices by 30 percent. Members had no need to forage elsewhere for bargains because Costco treated them so fairly. The company could have jacked up its prices and boosted margins, but that would have jeopardized its members’ trust. To the skeptics on Wall Street, this generosity seemed soft and uncompetitive—the corporate equivalent of collectivism. But Sleep and Zakaria saw the long-term logic of Costco’s largesse. Satisfied customers kept returning and spending more money in its stores, thereby generating enormous revenues. As the company grew, it negotiated better deals with suppliers and kept driving down its famously low costs. Costco then shared these economies of scale with consumers by lowering its prices even further. Sleep and Zakaria estimated that its members saved $ 5 for every $ 1 that Costco kept for itself. The effect of this policy of self-restraint was a virtuous cycle that Sleep sums up like this: “Increased revenues begets scale savings begets lower costs begets lower prices begets increased revenues.” Most big, successful corporations eventually lapse into mediocrity. But Costco’s readiness to share the benefits of its scale with customers meant that size became an advantage, not a burden, enabling the company to extend its edge over rivals that boasted higher margins. Costco, which was founded in 1983, kept growing by giving back, instead of grabbing all of the spoils for itself. Its low margins reflected patience, not weakness. Writing to Nomad’s investors, Sleep explained, “The firm is deferring profits today in order to extend the life of the franchise. Of course Wall Street would love profits today but that’s just Wall Street’s obsession with short-term outcomes.”

What emerged from these discussions was a conviction that nothing matches the might of the scale-economies-shared model in fostering corporate longevity.

The attraction of cigar butts waned and they concentrated instead on a handful of companies that shared their economies of scale with customers. They were acutely aware of how little in life we ever truly know. But they knew that they had uncovered a deep truth. “That’s the best single thought you may have ever had in your life,” says Sleep. “It needs to dominate everything because you’re not going to get many insights like that. Everything else is a bit low quality, isn’t it? It’s a bit transitory. It doesn’t make a big difference.”

  • First, they provide a compelling example of what it means to pursue quality as a guiding principle in business, investing, and life—a moral and intellectual commitment inspired by Zen and the Art of Motorcycle Maintenance.

  • Second, there is the idea of focusing on whatever has the longest shelf life, while always downplaying the ephemeral.

  • Third, there is the realization that one particular business model—scale economies shared—creates a virtuous cycle that can generate sustainable wealth over long periods.

  • Fourth, it’s not necessary to behave unethically or unscrupulously to achieve spectacular success, even in a voraciously capitalistic business where self-serving behavior is the norm.

  • Fifth, in a world that’s increasingly geared toward short-termism and instant gratification, a tremendous advantage can be gained by those who move consistently in the opposite direction.

The rest of this is just amazing. 👇

“When you look at all the mistakes you make in life, private and professional, it’s almost always because you reached for some short-term fix or some short-term high.… And that’s the overwhelming habit of people in the stock market.”

Howard Marks once told me, “Our performance doesn’t come from what we buy or sell. It comes from what we hold. So the main activity is holding, not buying and selling. I’ve always wondered if it wouldn’t enhance an organization to say, ‘We only trade on Thursdays.’ And the other four days of the week, all you can do is sit and think.”

All of the businesses he owns share one trait, which he describes as “the capacity to suffer.”

Chapter Seven: High-Performance Habits

It makes no small difference, then, whether we form habits of one kind or of another from our very youth; it makes a very great difference, or rather all the difference.—Aristotle

I think that people underestimate—until they get older—they underestimate just how important habits are, and how difficult they are to change when you’re forty-five or fifty, and how important it is that you form the right ones when you’re young.—Warren Buffett

Resounding victories tend to be the result of small, incremental advances and improvements sustained over long stretches of time. “If you want the secret to great success, it’s just to make each day a little bit better than the day before,” says Gayner. “There are different ways you can go about doing that, but that’s the story.… Just making progress over and over again is the critical part.”

Third, the company should have ample opportunity to reinvest its profits at handsome rates of return.

In all, Gayner owns about one hundred stocks, which may be overly defensive. But two-thirds of his assets are in his top twenty positions, which is moderately aggressive. His attitude toward tech stocks such as Amazon, Alphabet, and Facebook has been similarly measured. He was “very slow” to appreciate their sustainable competitive advantages, but belatedly recognized that they met his four investment criteria. Still, they weren’t cheap, and he couldn’t value them precisely. So he took an incremental approach. He “steadily” accumulated big (not huge) positions, dollar-cost averaging his way in to reduce the risk of overpaying. If he has blundered, it won’t be disastrous.

“Make your mistakes nonfatal,” Gundlach tells me. “It’s so fundamental to longevity. And ultimately, that’s what success is in this business: longevity.”

What Gayner’s record shows is that you don’t need to be extreme to achieve exceptional long-term results. On the contrary, he says, “People get themselves into trouble with extremes.” His steadfast pursuit of a radically moderate path would have met with the approval of some of the wisest thinkers in history, such as Confucius, Aristotle, Buddha, and Maimonides.

“For the man who flies from and fears everything and does not stand his ground against anything becomes a coward, and the man who fears nothing at all but goes to meet every danger becomes rash.”

Gayner is neither cowardly nor rash. Everything he does seems reasonable and balanced—from the way he eats and exercises to the way he structures his portfolio as a compromise between diversification and concentration. The beauty of his moderate approach to investing and life is not just that it delivers bounteous rewards, but that it’s replicable by regular human beings like you and me. Some of the famous investors I’ve interviewed have so much brainpower that they seem to operate in another realm, including Charlie Munger, Ed Thorp, and Bill Miller. Gayner is highly intelligent. But his real advantage is behavioral, not intellectual. Comparing himself to some of his cleverest peers, he remarks, “I compensate for the lack of intellect with more discipline and steadiness and persistence.” That said, it’s easy to underestimate Gayner. Jovial and self-deprecating, he lacks the ego and glamour we often expect from the lords of high finance. He drives a Toyota Prius. (“ I like getting fifty miles per gallon because I’m cheap,” he says. “And if we did not need oil, I think the world would be a more peaceful place.”) He lives in a pleasant but modest town house. (“ It’s just low maintenance.”) And he describes himself as “very happily married” to his high school sweetheart—a Presbyterian minister’s daughter whom he dated when he was fifteen and married at nineteen. For their first date, his parents drove them to a custard stand in the small town of Salem, New Jersey, where he grew up on a hundred-acre farm.

When I ask him what regular investors should do to get rich, he offers the least exotic advice imaginable: “Live on less than you make. Invest the difference at a positive rate of return. You cannot fail if you accomplish those two tasks.” He adds, “If you’re living on less than your means, you’re rich right now.”

Attached to the front of his computer screen is a piece of paper bearing a quotation from Michael Jordan: “I failed over and over again in my life, and that is why I succeed.” Gayner likes to remind himself that Jordan didn’t make it onto his varsity basketball team as a sophomore at high school, but then harnessed his “superhuman” work ethic and “sheer willpower” to become one of the greatest players of all time. “You cannot control the outcome,” says Gayner. “You can only control the effort and the dedication and the giving of one hundred percent of yourself to the task at hand. And then whatever happens, happens.”

Chuck Akre, a renowned money manager whom we’ll soon meet again, helped him to refine his understanding of reinvestment as the most powerful driver of business success.

It’s no accident that Gayner enjoys the trust of many leading investors. “One of the advantages I have is that I’m a nice guy,” he says. “I try to help people. I try to do the right thing. As a consequence, what I’ve found is that I have this wonderful network of friends, colleagues, and associates who are rooting for me, rather than against me. And they help you. They just help you.” We sometimes assume that you have to be ruthless to elbow your way to the top. But Gayner illustrates the subtler benefits of consistently looking to be kind and decent. I’ve come to think of this underappreciated edge as the Mensch Effect. Guy Spier, who runs the Aquamarine Fund, invests so much of his energy in helping others that he is similarly surrounded by people who wish to help him. Spier describes this phenomenon as “the compounding of goodwill.”

If your goal is sustainable success, Gayner is convinced that it works better to behave admirably, not least because more people want to do business with you if you’re trustworthy. “Sometimes people build great careers and enjoy great successes for a period of time through bluster and bullying and intimidation and slipperiness,” he says. “But that always comes unraveled. Always. Sometimes it takes a while, but it does. The people you find that just keep being successful year after year after year after year, I think you find those are people of deep integrity.”

When I try to identify the many reasons why Gayner has achieved so much, I’m reminded of a concept that Nick Sleep mentioned to me: “the aggregation of marginal gains.” The phrase was coined by a legendary performance coach, Sir David Brailsford, who turned the British cycling team into an unstoppable force at the Beijing and London Olympics.

Japanese principle of kaizen (continuous improvement),

Speaking with Eben Harrell at the Harvard Business Review, Brailsford explained, “It struck me that we should think small, not big, and adopt a philosophy of continuous improvement through the aggregation of marginal gains. Forget about perfection; focus on progression, and compound the improvements.”

None of these practices is earth-shattering in isolation. But remember: it’s the aggregation of marginal gains that’s so powerful. Moreover, the modest benefits generated by smart habits continue to compound over many years.

The good news, then, is that we don’t need a secret sauce or a stratospheric IQ. What we need is a selection of sensible habits that are directionally correct and sustainable—habits that give us a marginal advantage that will compound over time.

The best predictor of success is often nothing more mysterious than the unflagging fervency of a person’s desire.

“I love people. But if I’m not learning and growing and being stimulated intellectually, I’d rather be elsewhere.”

“You need a maniacal focus to really be great at anything. Anyone who tells you that you can have everything all at once, you can’t.

he keeps pondering the same underlying questions: “What am I missing? Who’s doing something that no one else is doing? How can I get better?”

I dip into the Zohar almost every day, and there are other books that I return to again and again, including Meditations by Marcus Aurelius, The Wisdom of Truth by Rav Yehuda Ashlag, and The Book of Joy by the Dalai Lama and Archbishop Desmond Tutu.

He focuses on outstanding businesses with leaders who are “creative, adaptable, visionary” and have “enormous courage.” Such qualities are more important than ever in an era of unprecedented disruption, which threatens even the most dominant businesses. “The problem,” says Lountzis, is that qualitative factors such as adaptability or courage “are not measurable” in financial statements, which offer a quantitative record of the past. Fantastic focus on leadership

“Geritz, whose Rondure Overseas Fund has one-third of its assets in Japan, says the priority for Japanese companies is to serve their customers, followed by their employees, business partners, and society at large: “And then I think the shareholder comes last.”” Am I the only one who thinks this should be the norm?

If there is one habit that all of the investors in this chapter have in common, it’s this: They focus almost exclusively on what they’re best at and what matters most to them. Their success derives from this fierce insistence on concentrating deeply in a relatively narrow area while disregarding countless distractions that could interfere with their pursuit of excellence.

“Think of Munger and Miller and Buffett: guys who just won’t spend a minute of time or an iota of mental energy doing or thinking about anything that doesn’t make them better.… Their skill is self-honesty. They don’t lie to themselves about what they are and aren’t good at. Being honest with yourself like that has to be part of the secret. It’s so hard and so painful to do, but so important.” Jason Zweig

Lao-tzu wrote that the path to wisdom involves “subtracting” all unnecessary activities: “To attain knowledge, add things every day. To attain wisdom, subtract things every day.”

The art of subtraction is incalculably important, particularly in an age of information overload when our minds can so easily become scattered.

World Without Mind: The Existential Threat of Big Tech,

The more distracted others become, the more of an advantage it is to subtract mental clutter, technological intrusions, and overstimulation.

Chuck Akre, who has beaten the market by a huge margin over three decades, finds it easier to think with equanimity in rural Virginia, where his firm, Akre Capital Management, is based in a small town with one traffic light. He lives in a house that looks out on the Blue Ridge Mountains. “We see deer and bears and foxes and coyotes and wild turkeys,” he says. “It’s a beautiful place. It’s good for the soul.” One benefit of being there is that he feels so distant from all “the stupidity and the nonsense” that he doesn’t get “uptight about what’s going on in the market and the world.… We just turn it off.”

All of this leads to a few practical conclusions that can help us to become wealthier and happier. First, to be successful and fulfilled, we need to decide what we care about most and be honest with ourselves about what we do best. Second, we need to adopt daily habits that enable us to improve continuously where it truly counts—and to subtract habits that divert us. It’s worth writing down a list of beneficial habits that should be part of our daily routine. But it’s equally valuable to compile a Do Not Do list, reminding us of all the ingenious ways in which we habitually distract or undermine ourselves. As Gayner suggests, the point is not to push for perfection, but to commit to habits that are sustainable and directionally correct.

the best investors show, sustained excellence requires us to subtract and go deep.

Chapter Eight: Don’t Be a Fool

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.—Charlie Munger

Munger adopts one practice that all of us would be wise to clone: He strives consistently to reduce his capacity for “foolish thinking,” “idiotic behavior,” “unoriginal error,” and “standard stupidities.”

I ask him why he focuses so much attention on avoiding common errors and predictable patterns of irrationality. “Because it works,” he says. “It works. It’s counterintuitive that you go at the problem backward. If you try and be smart, it’s difficult. If you just go around and identify all of the disasters and say, ‘What caused that?’ and try to avoid it, it turns out to be a very simple way to find opportunities and avoid troubles.” Munger

He once told Berkshire’s shareholders, “I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.” Indeed, it’s the third trick we must learn from him in our campaign to constrain our own stupidity. Munger

Another client phoned to ask if Martin could guarantee a 12 percent return “every year without fail.” Martin told him that stocks are too volatile to promise that level of consistency: “And he said, ‘Aww, a guy in New York—a genius named Madoff—won’t tell anybody how he does it, but he does 12 percent like clockwork.” So the client entrusted his savings to Bernie Madoff, operator of the biggest Ponzi scheme in history. The lesson? “If people can’t tell you how they do it” and “you can’t understand what they do,” says Martin, “that’s probably not the best spot to be in.” His “golden rule for risk management” is simple: “Know what you own.”

As Martin learned in the navy, “adherence to process” is an indispensable safeguard: “Always honor it because that’s going to keep you out of trouble.” I This idea of adopting a few standard practices and unbendable rules is our fourth technique for reducing stupidity. Buffett and Munger may not need formal constraints to maintain their discipline. But you and I are not them.

Martin has another rule that he observes “religiously” as a protection against calamity. He never invests more than 3 percent of his assets in a stock at the time of purchase. Typically, he owns forty-five to fifty stocks. Is that too conservative? Absolutely. But it hasn’t prevented him from beating the indexes by a wide margin over decades, and it has prevented no end of misery.

Martin has adapted that rule so that it’s also integral to his investment process. He has given two trusted colleagues the power to veto any of his stock picks before he makes the purchase—another systematic safeguard against his capacity for oversight and overconfidence.

One of the thorniest problems we face as investors is that the human brain is ill-equipped to make rational decisions. Our judgment is frequently torpedoed by emotions such as fear, greed, jealousy, and impatience; by prejudices that distort our perception of reality; by our susceptibility to serpentine sales pitches and peer pressure; and by our habit of acting on flawed or incomplete information. As the evolutionary biologist Robert Trivers writes in The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life, “our marvelous organs of perception” enable us to obtain information that our minds systematically “degrade and destroy.”

Munger’s compilation of “standard thinking errors” provides him—and us—with a practical checklist of pitfalls to avoid. “The trick here is to first understand them and then train yourself out of them,” says Sleep. “Articulating this stuff is easy. Internalizing it is not. That’s the hard work.” But it’s essential because “the most enduring advantages are psychological.”

Munger recommends a higher moral standard, which involves saying, “This is beneath me.”

Doubt-Avoidance Tendency makes evolutionary sense, given that our ancestors had to act decisively in the face of urgent threats.

Inconsistency-Avoidance Tendency, which inclines us to resist new information and insights that might challenge our conclusions, no matter how hastily we reached them.

The reluctance to reexamine our views and change our minds is one of the greatest impediments to rational thinking. Instead of keeping an open mind, we tend consciously and unconsciously to prioritize information that reinforces what we believe. The mistake of clinging blindly to our existing convictions can be exacerbated by several other psychological tendencies. Excessive Self-Regard Tendency leads us to overestimate our talents, opinions, and decisions. Overoptimism Tendency lures us into careless acts of financial hubris, especially when all is going well and we’re feeling clever. And Simple, Pain-Avoiding Psychological Denial causes us to distort facts when “the reality is too painful to bear.” That helps to explain why so many investors fool themselves into believing that they can outpace index funds in the long run, despite lacking the requisite skills, temperament, or control over costs. Munger likes to quote the ancient Greek orator Demosthenes, who observed, “Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.”

No one is going to say, ‘This is my prediction and it’s probably wrong.’ But you must say, ‘This is my expectation and I have to be aware of the likelihood that it’s colored by my emotional bias.’ And you have to resist it. For me, that means not to chicken out when the going gets tough.” Howard Marks

Munger particularly admires their unflinching determination to seek out “disconfirming evidence” that might disprove even their most cherished beliefs. This mental habit, which takes many different forms, is our fifth defense against idiocy.

That willingness to welcome the discovery of our own errors is an inestimable advantage.

Since 1972, See’s has earned about $ 2 billion in pretax profits, vindicating their new belief that it’s worth paying more for great businesses.

The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”

Nygren knows that it’s even harder to think objectively about a stock once he owns it. That’s partly because of the endowment effect—a cognitive bias that makes us value what we own more highly than what we don’t, whether it’s a stock or a beer mug. One way that Nygren counteracts this bias is by also performing devil’s advocate reviews for each of his biggest holdings. At least once a year, a team member reassesses the stock in question and “is given the responsibility of arguing why it should be sold.”

Another psychologically astute strategy is to perform a “premortem” before making any significant investment decision. That’s to say, you project into the future and ask yourself a hypothetical question: “Why did this decision prove to be such a disaster?”

Psychology of Intelligence Analysis.

This emphasis on adopting systematic analytical procedures is the sixth strategy in our epic quest to be non-idiotic.

The scientific literature shows that hunger, anger, loneliness, tiredness, pain, and stress are common “preconditions for poor decision making.” So Shubin Stein uses an acronym, HALT-PS, as a reminder to pause when those factors might be impairing his judgment and postpone important decisions until he’s in a state in which his brain is more likely to function well.IV This is our seventh technique for reducing avoidable stupidity.

“There are four things that we know improve brain health and brain function,” says Shubin Stein. “Meditation, exercise, sleep, and nutrition.”

construct a lifestyle that’s conducive to calm resilience. Munger, for one, has spent inordinate amounts of time engaged in activities that instill a sense of balance and well-being, whether it’s reading books in his library at home, playing bridge with friends, golfing, or fishing. He also keeps an uncluttered schedule that leaves him ample space for contemplation. The details differ, but we all need habits and hobbies that foster equanimity.

“If you’re going to be in this game for the long pull, which is the way to do it, you better be able to handle a fifty percent decline without fussing too much about it. And so my lesson to all of you is, conduct your life so that you can handle the fifty percent decline with aplomb and grace. Don’t try to avoid it. It will come. In fact, I would say if it doesn’t come, you’re not being aggressive enough.” Munger

Epilogue: Beyond Rich

designed his incentives so he’d earn nothing unless his clients made a profit. “People who don’t care about other people and are willing to do inconsistent, outrageous things and rip other people off seem to have an edge,” he says. “But to me, it’s maybe an edge in getting what they want. They can rip off more raw meat from the carcass of life. But they don’t live well and they don’t realize it. And when it’s all over, they’ve basically wasted their lives.”

Thankfully, I’d taken the precaution of avoiding debt. So I managed to ride out the crisis without selling any investments. Still, that traumatic period reinforced my conviction that nothing is more essential than our capacity to survive the most difficult times—not only financially, but emotionally. It’s easy to forget this when everything is going well. Money can provide an invaluable cushion, a lifeline, a critical defense against uncertainty and misfortune. But it’s not enough. We also need the mental fortitude and resilience to weather those storms and rebuild in their wake. For most of us, the quality of our lives depends less on our finances than on inner attributes such as equanimity, acceptance, hope, trust, appreciation, and determined optimism. As John Milton wrote in Paradise Lost, which he dictated after going blind, “The mind is its own place, and in itself can make a heaven of Hell, a hell of Heaven.”

Mohnish Pabrai remarks that all of the best investors share one indispensable trait: “the ability to take pain.”

“There’s so much randomness that it can drive you insane,” said Karp. “It requires a certain type of masochistic, weirdly wired human to do this [job] for a very long period of time.… It’s almost akin to subjecting yourself to torture over and over and over again. Because when you get it right, it feels great. But you get it wrong often. And you have to keep coming back.”

In challenging times, Pabrai attempts to clone the mindset of Marcus Aurelius,

Thoughts of a Philosophical Fighter Pilot,

If your life is more important than your principles, you sacrifice your principles. If your principles are more important than your life, you sacrifice your life.”

“By your own thoughts you make or mar your life, your world, your universe,” Allen preached. “As you build within by the power of thought, so will your outward life and circumstances shape themselves accordingly.… The soul that is impure, sordid, and selfish is gravitating with unerring precision toward misfortune and catastrophe; the soul that is pure, unselfish, and noble is gravitating with equal precision toward happiness and prosperity.”

Honesty and integrity became guiding principles, and he took to heart Allen’s assertion that “the rich man who is barren of virtue is, in reality, poor.” Van Den Berg no longer allowed negative thoughts about himself or others to linger in his mind and drain his energy. Where once he’d been consumed by resentment and hostility, he now rebuilt himself from the inside by constantly repeating positive phrases such as “I am a loving person.”


If you want to improve your ability to read balance sheets and income statements, Greenblatt recommends books such as Benjamin Graham’s Interpretation of Financial Statements, James Bandler’s How to Use Financial Statements, and John Tracy’s How to Read a Financial Report.

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