The editorial board of this journal | Xie Changyan
Charlie Munger: I believe it is wise to learn from the valuable experience of others, and I don't believe that closing my eyes and listening can make a dream come true.
When the market rises, it will make money; When the market falls, you will lose money, which is almost the state of most investors and investment institutions in the market. Even regardless of whether they choose high-quality assets or not, the investment income is the same as the overall level of the market. If you can't beat the market, then you are the market, the "flock".
In Richer, Wiser, Happier, author William Green describes how the forty or so world's top investors he interviewed have excelled in the market and have been getting asymmetric overperformance from the market for decades. These people are like "God's darlings", although they enter the market at different times and invest in different targets, they all have a religious passion and belief in value investing. Most of them are believers in Munger, Buffett and Graham, and fully interpret the basic characteristics of value investing - "patience, self-discipline and risk aversion".
They are winners of wealth, but they are not caught up in the pursuit of money. For some, the joy of solving problems outweighs the joy of making money. Still others are passionate about philanthropy and giving their wealth back to society. They go beyond investment, beyond wealth. As Bob Marley, the musician and godfather of reggae, quoted in this book, said, "My wealth is my life." ”
Bhamand and his followers
Opening the beginning of "Richer, Wiser, Happier" reminds me of Buffett's article "Graham-Dodd's Super-Investors" (this article was published in the appendix to the 4th edition of the book "The Intelligent Investor"). The article is based on Buffett's 1984 speech at a value investing symposium at Columbia University. The symposium commemorated the 50th anniversary of the publication of the book "Security Analysis" co-authored by Benjamin Graham and David Dodd. In this article, Buffett introduces nine Graham and Dodd tribe super investors, such as Walter Schloss, Bill Ruan, Louis Simpson and Charlie Munger. Their portfolios rarely overlap, some focus on big blue chips, some hold unknown pink sheet market targets, but all have achieved the same excellent results as Buffett. These Graham-Dodd investors share a common idea: to find the difference between the value of a business and the price of a small piece of market share, and use that difference to buy stocks.
By 2020, when Richer, Wiser, and Happier was first published in the United States, value investors are no longer the small group they were in 1984. There are not only Warren Buffett, Charlie Munger, Bill Ruane in this book, but also John Templeton, Irving Kahn, Howard Marks, these investment masters on a par with Buffett and Munger. There are also many new generations of value investment, most of whom were born in the 60s and 80s of the 20th century, such as Monish Pabloe, born in India, Matthew McLennan, born in Papua New Guinea, Zakaria born in Iraq, and so on.
The new generation of value investors who are highlighted by author William Green have different backgrounds, different experiences, and different investment targets, but whether they are from science classes or halfway home, these people basically take Buffett and Munger as models. The Indian-American investor Monish Pablo at the beginning of the article is exactly following Buffett's example, and he sees him as a mentor. After being exposed to Bramand investment ideas in 1994, he began reading them voraciously and made an annual pilgrimage to Omaha for Berkshire's annual shareholder meeting. In July 2007, he also teamed up with his friend Guy Speer to photograph Buffett's charity lunch and communicate with Buffett face-to-face. Through the well-known Buffett investment rules, he turned $1 million into $1 billion, and the snowball is still getting bigger and bigger.
Paul Lanzis, an investor in Chapter 7, "High Performance Habits," sees Buffett as "a great example of continuous self-improvement." Like Barmand, he is "a powerful learning machine." He has at least 500 Buffett videos and valuable recordings of Munger that he can find. He also kept records of dozens of annual shareholders' meetings. He has watched a video of Buffett's 1998 lecture at the University of Florida 15 times and read the transcript at least five times. Likewise, he studied Berkshire's 1993 annual report so deeply that he could recite word for word the 5 main factors Buffett considered when assessing stock risk. For nearly 30 years, he has also traveled to Omaha every year to attend Berkshire's annual shareholder meeting. He "engraved in his mind" many of his "fundamental" principles, as if he were repeating the same prayer or vow every day.
In addition, investors such as Zakaria, Gayner and Lanzis also hold heavy positions in Berkshire stocks. In 2020, Lunzis took advantage of the stock market crash caused by the coronavirus pandemic to significantly increase his holdings of Berkshire Hathaway, increasing the company's share of its portfolio to 25%.
The protagonists in "Richer, Wiser, Happier" are people who succeed by wisdom, and their success depends entirely on investment, and the success of investment depends entirely on self-cultivation and learning. This has nothing to do with the trading of power for money, unspoken rules, commercial fraud, counterfeiting, etc. that we see in contemporary society. They have achieved great success in the business community with the cleanest methods.
As Seth Karaman puts it in The Eternal Wisdom of Graham and Dodd (foreword to the 6th edition of Securities Analysis), "No long-term investor regrets sticking to the idea of value investing." Investors who believe in value investing rarely turn to other investment methods. ”
Reflections on institutions
Compared to the great investors mentioned in "Richer, Wiser, Happier", which focus on value itself from the bottom up, most investors pay little attention to the standard of value, focusing on the company's earnings growth, the price trend of the stock or the market index, and make money by playing with the market.
Although the group of value investing is expanding, it is undeniable that there are still many investors in the market who lack or even have no value orientation. The capital market is always accustomed to dividing investment into value and growth, in the author's personal opinion, value and growth are essentially the same thing, both are enterprises continue to create value, investors to share the benefits, high-quality growth is the judgment of the future value of the enterprise. A more accurate statement should be value investment and market game transactions, one is to earn money for the company's growth and create value, and the other is to earn money in other people's pockets, which is commonly known as "cutting leeks".
The investors mentioned in this book can not only better assess the value of the company, but also patiently wait for the opportunity to "buy stocks at a significant discount below the intrinsic value of the business", and can patiently wait for "the gap between the current price and the valuation of the company to close", and always maintain sufficient cash reserves. Arguably, value investing strategies are useless for impatient investors, because value investing must persist for enough time to be rewarded by the market.
In contrast, some fund managers, even those who are unlucky and value-oriented, are forced by tangible or intangible performance pressure to engage in short-term investments with cycles as short as a quarter or even a month. More attention is paid to short-term performance, due to the assessment of the investment manager's platform, as well as the pressure of investors and the interpretation bias of the media, which makes it difficult for fund managers to adopt contrarian investment strategies or long-term strategies.
Perhaps, some fund managers are also reluctant to stand alone, because as long as they choose a herd strategy and stay in a safe haven with certainty and mediocre performance, they will easily face the capital withdrawal caused by the decline in performance. As Marley Everard, the investor mentioned in the book, said, "It feels much warmer inside the flock."
Everard was exposed to Graham's theory of value investing in 1968 and compared his discovery to religious conversion. But after that, he still wasted 15 years in the "flock". Because his bosses don't see the charm of value investing, he can only continue to use the old strategy, investing in the stocks of large companies that are included in the index, and get the same average return as the people around him. It wasn't until 1979 that he had the opportunity to manage a single mutual fund according to Graham's philosophy.
But he was besieged during the dot-com bubble in 1999. Although the funds it manages made a 19.6% return that year, they far underperformed the 85.6% gain of the Nasdaq because they were not involved in technology stocks. This has led to the flight of 70% of fund shareholders and a two-thirds reduction in assets under management. Everard struggled to change logic until the tech bubble burst the following year, his portfolio of penny stocks performed well, and the value of rationality was once again confirmed. Evillard, who was regarded as a fool a moment ago, became a saint again in the blink of an eye.
So how can value investors invest according to their hearts and feel unchecked? Some investors choose to return their funds to investors after decades of excess returns, and then fully concentrate on managing their wealth, so that they do not have to be held back by others and do not have to be responsible to others. There is more than one such investor in this book, such as Joel Greenblatt and his collaborator Robert Goldstein, as well as Nick Slipp and Zakaria. The latter two investors returned shareholders' funds in 2015 and retired from fund managers at the age of 45. In the first 5 years of retirement, their wealth nearly tripled.
From this detached state, true value investing is more suitable for individual investors. Although institutions have financial advantages, information advantages, etc., financial management for others is often subject to scrutiny, often compared with others, and often criticized for things beyond their control. There is no doubt that this is painful. Individual investors, on the other hand, only need to be responsible for themselves and are more likely to be independent of the herd.
Beyond investment and wealth
The top investors in Richer, Wiser, Happier have been successful in wealth, but wealth is not all these people's lives. Family, health, challenging work, and constant learning bring these people more happiness than wealth itself. In their view, true wealth is not entirely linked to wealth.
Asked in 2015 what kind of life is meaningful, investment guru Owen Kahn, who died at the astonishing age of 109, said, "For me, family is very important." And Charlie Munger also said that if the only success in our life is to get rich by buying stocks, then it is a failed life. Life is more than just savvy accumulation of wealth.
In the book, Monish Pabley, investing is just a game, only he is better at playing it. He is also as passionate about philanthropy as Buffett, Munger, John Templeton and others, giving more wealth back to society.
In addition, the "patience, self-discipline and risk aversion" characteristics of value investing will also lead to a better quality of life. Jason Karp, the investor in the book, for example, developed several potentially life-threatening immune diseases at the age of 20, and doctors told him that he could go blind by the age of 30. But with surprising patience and self-discipline, he completely recovered after revolutionizing nutrition, sleep and stress management.
Like Jason Karp, the important thing for these wonderful investors may not be to find happiness, but how to reduce pain and improve self-cultivation. These pains may come from health, pressure from investors, pain from asset losses, or personal uncertainty about the future. Because of this, some of the books that these people regard as "Bible" are not directly related to investing. For example, Nick Slipper's Bible is "Zen and the Art of Motorcycle Maintenance," Bill Miller's Bible is "Thoughts of a Philosophical Fighter Pilot," and Arnold Vandenberg, a "troubled boy," sees From Poverty to Power as his "Bible."
It can be seen that many value investments are "outside the poem", and living well and studying well are the prerequisites for doing a good job in value investment. In May 2018, when I interviewed Mr. Li Lu, the founder of Himalaya Capital in the United States, he also said, "Investing purely for the purpose of making money will not create extraordinary performance." ”
Write at the end
For value investing, some people may resonate, others will be indifferent, and how to persuade through records will not help.
If value classics such as "Securities Investment", "Smart Investor", "Poor Charlie's Book", "Buffett's Letter to Shareholders" and so on can make you feel a sense of stake, and you can resist speculation and remain calm enough, perhaps you have the potential for value investing. But many people feel that Buffett and Munger's value investment path can only be appreciated and difficult to imitate. Reading such a book may make you have more examples and examples of persistence on the road of practicing "value investment with knowledge and action".
If you are indifferent to value investing, reading such books will at least give you a better understanding of how value investing thinks, or maybe some new insights on the road of life.
(This article was published in the November 5 issue of Red Weekly.) ）