Richer, Wiser, Happier

Similarly, as stocks tumbled in March 2020, McLennan added to his stake in a Japanese firm, Hoshizaki—another exquisitely mundane and persistent business that he describes as “the world leader in ice machines for restaurants.” He explains, “Restaurants always come and go, but they need the same equipment. So the equipment maker is a far safer bet than betting on a restaurant.”

Opportunities to buy “good businesses at good prices” tend to arise erratically, often amid outbreaks of volatility. But McLennan is perfectly happy to wait five or ten years for a desirable company on his watch list to meet his valuation hurdles. In the meantime, he has the discipline to let cash pile up, instead of feeling obliged to invest when prices are too high for comfort. Indeed, the most critical idea he tries to instill in his analysts is the importance of saying no.

They “rent” stocks, instead of owning them for years. 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.

As McLennan describes the process of building a portfolio that can flourish over time, he’s reminded of watching his mother gardening while he was growing up in Australia. There was always a problem. Dry weather. Wilting vines. Bug infestations. He often wondered why she bothered to keep going. It would have been so much easier to let the forest grow or just settle for a lawn that needed mowing once a week. But her care yielded remarkable results over three decades. “What I saw play out over time was the gradual emergence of this beautiful, beautiful garden that took time. It took selectivity. And I think it’s a good metaphor for investing.”

Nassim Nicholas Taleb writes in Antifragile: Things That Gain from Disorder, “It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it.”

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

Greenblatt, who has a strong entrepreneurial streak, loves starting new ventures. But his underlying ambition isn’t to maximize his own wealth by building a financial empire. “I have nothing against making money,” he says. “But it’s not really what drives me. I have enough.”

One of the most thoughtful proponents of simplicity is Josh Waitzkin, an expert on peak performance in fields as diverse as chess, martial arts, and investing. As a child prodigy, he was a national chess champion and the subject of the movie Searching for Bobby Fischer. As an adult, he became a world champion in tai chi chuan push hands, a coach to hedge fund managers, and the author of a fascinating book, The Art of Learning: An Inner Journey to Optimal Performance.

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.”

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.”

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.

Many investors get rattled when they read the latest news about, say, a Greek debt crisis that threatens the European economy. But Greenblatt says, “The way I look at it is, if I own a chain store in the Midwest, am I all of a sudden going to sell it for half of what it’s worth because something bad happened in Greece? I don’t think so! But that’s what you read in the newspaper, and that’s what everyone is looking at. If you have a context to say, ‘Well, does it matter or doesn’t it matter?’—it’s just very helpful.”

In The Intelligent Investor, Graham suggests imagining that you own a $1,000 stake in a private business. Every day, your partner—the obliging but irrational Mr. Market—provides you with a valuation of that stake. His price quote changes based on how enthusiastic or fearful he feels that day: “You may be happy to sell out to him when he quotes you a ridiculously high price and equally happy to buy from him when his price is low.” The rest of the time, you can sit on your hands, waiting for Mr. Market to lose his mind once more and offer you another deal that you can’t refuse.

Buying cheap is great—and if I can buy good businesses cheap, even better.”

“Pretty much everything we ever owned, we sold way too early,” he says. “If you’re very cheap in buying, it’s hard to be as comfortable when something has doubled or tripled, even if it’s still good.”

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.

“The greatest enemy of a good plan is the dream of a perfect plan.”

For Pirsig, motorcycle maintenance provides an ideal metaphor for how to live and work in a transcendent way. “The real cycle you’re working on is a cycle called yourself,” he writes. “The machine that appears to be ‘out there’ and the person that appears to be ‘in here’ are not two separate things. They grow toward Quality or fall away from Quality together.”

“You really want to do everything with quality as that is where the satisfaction and peace is.”

In April 2000, when the dot-com darlings were getting smashed to pieces, Zakaria escaped from Deutsche to work with Sleep as an analyst at Marathon’s office in London. In May, they traveled together to Omaha for Berkshire Hathaway’s annual meeting. “It was wonderful,” says Zakaria. Warren Buffett and Charlie Munger spoke about companies they expected to own for decades. They weren’t rolling the dice on the latest idiotic IPO or scheming to line their pockets at other people’s expense. “Oh, my God,” thought Zakaria. “This is nothing to do with a casino! This is about real businesses!”

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

Pat Dorsey, a Chicago-based hedge fund manager, expresses a similar view. “The single best thing any investor can do is to not have a TV and a Bloomberg terminal in their office,” he once told me. “That I have to walk fifty feet down the hall to look at stock prices or check the news on our portfolio is great. It’s so tempting. It’s like checking email obsessively: you get a little dopamine rush. But as we all know logically and rationally, it’s utterly nonproductive.”

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.”

Sleep and Zakaria played what they viewed as “a long, simple game,” which involved buying a few intensively researched stocks and holding them for 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.”

Zakaria says he occasionally glances at his portfolio and wonders, “What would Nick do? And I think, ‘Nick wouldn’t do anything.’ And I go, ‘Okay, that’s done for another six months.’”

As pleasure-seeking creatures, we tend to be drawn to whatever feels good now, despite the price that we (or others) may have to pay later.

The paradox here is that the slower road almost always proves to be faster in the end.

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.”

Nobody personifies this slow-motion mindset better than Thomas Russo, who has generated market-beating returns over more than three decades at Gardner Russo & Gardner, which is based in Lancaster, Pennsylvania. “I call myself a farmer,” says Russo. “Wall Street is flooded with hunters—people who try to go out and find the big game. They fell it and bring it back, and there’s a huge feast and everything is fabulous, and then they look for the next big game. I plant seeds and then I spend all of my time cultivating them.”

“I think it’s almost always true that the things we do that make us unhappy” look appealing “in the short term.”

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

“If you want the secret to great success, it’s just to make each day a little bit better than the day before,”

“It’s been my experience that the richest people were those who found something good and held on to it. The people who seemed the least happy and the most frenzied and the least successful are those that are always chasing the next hot thing.”

“If you can continue to satisfy and be reasonable, there’s all kinds of people that are going to fall away along the path, and it’s amazing how high up in the percentile rankings you’ll become,”

“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.”

“I compensate for the lack of intellect with more discipline and steadiness and persistence.”

“Live on less than you make. Invest the difference at a positive rate of return. You cannot fail if you accomplish those two tasks.”

“If you’re living on less than your means, you’re rich right now.”

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.”

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

It’s just my personality—always trying to get smarter, to learn.”

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

There is breadth to his studies. But what makes Lountzis such a powerful learning machine is his habit of obsessive repetition.

I suspect that the value of repetition is vastly underrated and that most of us would do well to find one or two books that we read so often that they become part of us. 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.

she’s an intellectual adventurer, propelled by “the passion to learn.”

Before each trip, Geritz creates a study program designed to enrich her understanding of the place she’s visiting. “I try to read at least three books for every country I go to,” she says. Typically, one book is about the economics or politics of the country or region; one is a work of literature; and one is a lighter piece of pop culture, such as a mystery or crime novel.

It’s an unusually cerebral approach to investing, based on her belief that reading deeply and traveling widely will give her a more expansive perspective that is a significant, yet intangible, edge.

Intermittently, Geritz plants herself in a foreign location for weeks at a time, so she can immerse herself more fully in the culture, studying how the locals live, spend, and consume.

Most of us yearn to live in a place where we feel a sense of belonging and inclusion. But her natural state is to be “a complete and total outsider.”

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.

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.”

Thousands of years earlier, the Taoist philosopher 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.”

“We’re being dinged, notified, and click-baited, which interrupts any sort of possibility for contemplation. To me, the destruction of contemplation is the existential threat to our humanity.”

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

He strives consistently to reduce his capacity for “foolish thinking,” “idiotic behavior,” “unoriginal error,” and “standard stupidities.”

It’s a curious paradox that one of the smartest people on earth focuses primarily on avoiding stupidity. But as we shall see, this is an extraordinarily effective strategy in markets and life.

“Hardin’s basic idea was, if somebody asks you how to help India, just say, ‘What could I do to really ruin India?’ And you think through all of the things you could do to ruin India, and then you reverse it and say, ‘Now, I won’t do those.’

When I ask Munger how to apply this method of thinking to practical problems such as deciding whether to get married or buy a particular stock, he recommends asking, “‘Is this going to be a disaster?’ instead of asking, ‘Is it going to be wonderful?’ Finding out what’s wrong and trying to avoid it is different from finding out what’s good and trying to get it. You have to do both, of course, in life. But this inversion of looking for the trouble and trying to avoid it keeps you out of a lot of messes. . . . It’s a precaution. It’s like a checklist before you take off in an airplane.”

This, then, is the first mental trick we should learn from Munger as a safeguard against stupidity: imagine a dreadful outcome; work backward by asking yourself what misguided actions might lead you to that sorry fate; and then scrupulously avoid that self-destructive behavior.

Nothing matters more than averting obvious errors with the potential for catastrophic consequences.

There are “two sources of return for a stock,” he says. “One is the growth in intrinsic value. The other is the truing up” between the stock price and the “real value” of the underlying business. He has no idea when that truing up will occur. But his average holding period is a decade.

“Three things ruin people: drugs, liquor, and leverage.”

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.

Munger often remarks on how critical it is to partner with honorable and unselfish people, while avoiding those with “perverse incentives.”

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

“Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.”

“The investor’s chief problem—and even his worst enemy—is likely to be himself.”

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.

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.

“sadness increased tendencies to favor high-risk, high-reward options, whereas anxiety increased tendencies to favor low-risk, low-reward options.” In other words, our emotional disposition and moods routinely distort what we see and how we relate to risk.

The scientific literature shows that hunger, anger, loneliness, tiredness, pain, and stress are common “preconditions for poor decision making.”

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

“The reason you meditate is not because it’s important on a specific day. The regular practice of meditation will help you handle the hard setbacks and will keep you constantly prepared for them. . . . Having that practice in place prepares you well. It’s a lot like preventative medicine.”

We, too, need the self-awareness and honesty to acknowledge when our emotional state is likely to compromise our judgment and our performance, so we can proceed with heightened caution.

When I ask if he has a mental process that helps him to defuse self-defeating emotions, he replies, “I know that anger is stupid. I know that resentment is stupid. I know self-pity is stupid. So I don’t do them. . . . I’m trying not to be stupid every day, all day.”

Munger has no interest in gambling at casinos or racetracks. “If the odds are against me,” he says, “I just don’t play.”

For Munger, the goal has never been to win at all costs. “Money was very important to him,” says his daughter Molly. “But to win it by cheating or win it and lose the battle for life, that was never what he was about.”

If you want to have a good partner, be a good partner. It’s a very simple system, and it’s worked very well.”

“The idea that life is a series of adversities and each one is an opportunity to behave well instead of badly is a very, very good idea,” says Munger.

If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation. —Charlie Munger

A television reporter once asked Bob Marley, “Are you a rich man?” The musician replied warily, “What you mean rich?” The reporter clarified his question: “You have a lot of possessions? A lot of money in the bank?” Marley responded with a question of his own: “Possessions make you rich? I don’t have that type of richness. My richness is life, forever.”

Sir John Templeton once wrote, “Material assets bring comfort, but help little toward happiness or usefulness. . . . One of the real fallacies is the popular notion that happiness depends on external circumstances and surroundings.”

“Who you spend your time with is probably the most important thing in life,” says Thorp,

“People who just keep piling up stuff don’t get that. And they end up with a whole lot of stuff at the end, but they’ve spent their whole life just chasing it.”

“I have also gotten pleasure from meeting people who are smarter than me and who gave me important answers. There are too many mysteries in life. At some point, you have to ask for directions.”

He was never in it for the material things.” Most of all, he enjoyed “the satisfaction of being right and making good choices and doing better than others.”

As Thomas Kahn puts it, “You build capital and then you can do whatever you want because you’re independent.”

For many of the most successful investors I’ve interviewed, that freedom to construct a life that aligns authentically with their passions and peculiarities may be the single greatest luxury that money can buy.

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.

“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.”

to their captors or accept early release. “To the Stoic, the greatest injury that can be inflicted on a person is administered by himself when he destroys the good man within him,” he wrote. “You can only be a ‘victim’ of yourself. It’s all how you discipline your mind.”

As a prominent investor, you’re frequently invited to “pontificate about everything.” But when you’ve been “massively wrong” and “you’re getting crushed in the market, no one wants to hear about what you think. You’re really forced to look internally and confront your mistakes and see if you can do better. And it’s good for the ego.”

Nobody has an untroubled upward trajectory, and there are times when we all need additional support—from philosophy, spirituality, family, friends, or wherever else we can find it.

Dilgo Khyentse Rinpoche, a Tibetan Buddhist master who was a teacher of the Dalai Lama, once said, “Those who seek happiness in pleasure, wealth, glory, power, and heroics are as naive as the child who tries to catch a rainbow and wear it as a coat.”

“It’s simple. 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.”

“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.”

“I always want to be working on self-improvement until the day I die,”

Never compromise what you believe in. Never be satisfied with what you are, only with what you can be. And never give up.”

“I didn’t care if I made millions,” he says. “I just wanted to be financially independent and not take any shit off anybody. . . . The luxury is not having to worry about money or a bill or a financial setback.”

“I’m the richest guy in the world because I’m content with what I have,” says Van Den Berg. “I feel wealthier not because I have more money but because I’ve got health, good friendships, I’ve got a great family. Prosperity takes all of these things into consideration: health, wealth, happiness, peace of mind. That’s what a prosperous person is, not just a lot of money. That doesn’t mean anything.”

“The most important thing people need is love—and the less love they have, the more they need these material things,” says Van Den Berg.

Being able to help others, says Van Den Berg, is “the greatest blessing the money has given me.”

“I feel that the best gift I could give anybody, whether they’re poor or rich, is to give them a book that could change their life,” he says. “And so my hobby is giving out books.”

Tucked away inside the filing cabinets in his office, he keeps what might just be his most valuable possession: a copious collection of heartfelt letters from many of the people he has helped, including countless friends, clients, random strangers, and his own children. “The pleasure you get out of knowing you’ve made a difference in people’s lives—that’s something that nobody can take away from you,” he says. “I could lose all my money, and I could still go to these files and say, ‘Well, it’s not like I lived my life for nothing. Look at the people whose lives I’ve changed.’” Van Den Berg points to his trove of letters and says, “That’s my bank account.”

As Allen wrote 120 years ago, “It matters little what is without, for it is all a reflection of your own state of consciousness. It matters everything what you are within, for everything without will be mirrored and colored accordingly.”