By ofwisdomowl Have a look at some other quotes from Poor’s Charlie Almanack here
AN INVESTING PRINCIPLES CHECKLIST
Risk:
All investment evaluations should begin by measuring risk, especially reputational.
- Incorporate an appropriate margin of safety.
- Avoid dealing with people of questionable character.
- Insist upon proper compensation for risk assumed.
- Always beware of inflation and interest rate exposures.
- Avoid big mistakes; shun permanent capital loss.
Independence:
“Only in fairy tales are emperors told they are naked.”
- Objectivity and rationality require independence of thought.
- Remember that just because other people agree or disagree with you doesn’t make you right or wrong—the only thing that matters is the correctness of your analysis and judgment.
- Mimicking the herd invites regression to the mean (merely average performance).
Preparation:
“The only way to win is to work, work, work, work, and hope to have a few insights.”
- Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.
- More important than the will to win is the will to prepare.
- Develop fluency in mental models from the major academic disciplines.
- If you want to get smart, the question you have to keep asking is “Why, why, why?”
- Intellectual humility: Acknowledging what you don’t know is the dawning of wisdom.
- Stay within a well-defined circle of competence.
- Identify and reconcile disconfirming evidence.
- Resist the craving for false precision, false certainties, etc.
- Above all, never fool yourself, and remember that you are the easiest person to fool.
Analytic rigor:
Use of the scientific method and effective checklists minimizes errors and omissions.
- Determine value apart from price, progress apart from activity, wealth apart from size.
- It is better to remember the obvious than to grasp the esoteric.
- Be a business analyst, not a market, macroeconomic, or security analyst.
- Consider the totality of risk and effect; look always at potential second-order and higher-level impacts.
- Think forward and backward: Invert, always invert.
Allocation:
Proper allocation of capital is an investor’s number one job.
- Remember that the highest and best use is always measured by the next best use (opportunity cost).
- Good ideas are rare—when the odds are greatly in your favor, bet (allocate) heavily.
- Don’t fall in love with an investment—be situation-dependent and opportunity-driven.
Patience:
Resist the natural human bias to act.
- Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily.
- Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake.
- Be alert for the arrival of luck.
- Enjoy the process along with the proceeds, because the process is where you live.
Decisiveness:
When proper circumstances present themselves, act with decisiveness and conviction.
- Be fearful when others are greedy and greedy when others are fearful.
- Opportunity doesn’t come often, so seize it when it does.
- Opportunity meeting the prepared mind—that’s the game.
Change:
Live with change and accept unremovable complexity.
- Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you.
- Continually challenge and willingly amend your best-loved ideas.
- Recognize reality even when you don’t like it—especially when you don’t like it.
Focus:
Keep things simple and remember what you set out to do.
- Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat.
- Guard against the effects of hubris and boredom.
- Don’t overlook the obvious by drowning in minutiae.
- Be careful to exclude unneeded information or slop: “A small leak can sink a great ship.”
- Face your big troubles, don’t sweep them under the rug