Below are the key notes I took from the book. Keep in mind these are the lessons I found relevant to me personally. There is a lot covered in the book that I haven't mentioned below, maybe because it's something I've already internalised and didn't need reminding of, or something that I just didn't find interesting or important. However, they might be interesting or important to you. Therefore, I still recommend you read the book fully so you don't miss anything!

John Bogle

• Don’t take excessive risk
• Keep your costs low.
• The crowd is always wrong.

Bill Miller

• Investing is all probabilities. There is no certainty.

Bill Ruane (who Warren Buffett once recommended as his replacement):

• Do not borrow money to buy stocks (you don’t act rationally when investing with borrowed money)
• Proceed with extreme caution when you see markets going crazy, either because the herd is panicking, or buying up stocks to irrational valuations.
• Ignore market predictions. Just find an attractive idea and invest in a company that’s cheap.
• Invest in a small number of stocks you’ve researched intensely so you have informational advantage. If you find something really cheap, why not put in fifteen percent of your money? “I don’t know anyone who does well investing in a lot of stocks, except Peter Lynch.”

Investing is all about stacking the odds in your favour.

From billionaire Mario Gabelli — “Learning to player poker or bridge, anything that teaches you to play the probabilities, would be better than all the books on the stock market.”

Mohnish Pabrai

Pabrai has based his entire philosophy on cloning. Just look at what other successful people are doing and copy them. His investment style is cloned directly from Warren Buffett.

1. When you buy a stock, you are buying a business, not a piece of paper.
2. The stock market is a voting machine, not a weighing machine, meaning prices will often fail to reflect the true value of a business.
3. Only buy a stock when it’s selling for much less than your conservative estimate of its worth. The gap between a stock’s intrinsic value and its price is known as its “margin of safety”

Investing is mostly a matter of waiting for rare moments when the odds of making money vastly outweigh the odds of losing it.

Good investors like Buffett can go years without buying anything. He bought almost nothing between 1970 and 1972 when valuations were sky high. Then when the market crashed in 1973, he bought a major stake in Washington post which he held for 40 years. He bought it when the market only valued it at $80 million, when its assets were worth closer to $400 million.

Munger says — you should be like a man standing by a stream with a spear. Most of the time you’re doing nothing. But when a juicy salmon swims past, you spear it. Then go back to doing nothing for six months.

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

When the market crashed in 2008, Pabrai bought ten stocks in two months. But in 2011, he bought two stocks the whole year, three in 2012, and nothing in 2013. In 2018, Pabrai’s hedge fund owned zero US stocks at all — think about that — 3,700 companies listed in the US and Pabrai didn’t consider any of them good investments.

Pabrai and Buffett pick stocks the same way. Pabrai glances at hundreds of stocks and rapidly rejects almost all of them, often in less than a minute.

Buffett is simply looking for a reason to say no, and as soon as he finds it, he’s done.

“The difference between successful and unsuccessful people, is successful people say no to almost everything.”

Buffett’s rules:

• You can only invest if the company is within your circle of competence. Do you really understand this company?
• The company has to have a significant margin of safety. Pabrai dislikes spreadsheets and prefers an investment that’s so cheap it’s a no brainer.
• The company should have a strong moat and be run by a capable CEO.
• The company’s financial statements should be clear and simple. If it isn’t easy to figure out how a company generates cash, it goes straight into the “too hard” pile. Automatically pass on anything that’s too hard — companies based in Russia, Zimbabwe, SPACs etc.

Looks for bets that are “Heads I win, tails I don’t lose much.”

Summary: Be patient and selective, say no to almost everything, exploit the market’s bipolar mood swings, buy stocks at big discounts to underlying value, stay withing your circle of competence, avoid anything too hard, make a small number of mispriced bets with minimal downside and significant upside.

Buffett: “If you’re a slightly above average investor who spends less than he earns, over a lifetime you can’t help but get very wealthy.”

Francis Chou (big Canadian fund manager):

“When there’s hardly anything to buy, you have to be very careful. You have to just be patient, and the bargains will come. If you want to participate in the market all the time, then it’s a mug’s game and you’re going to lose.”

Sometimes Chou can go ten years without buying anything if nothing looks good. He simply plays golf, and reads 200 pages a day.

John Templeton

You must have a willingness to be lonely. When stocks plummet, investors panic and the average investor follows the tribe by selling. They fail to recognise it’s actually the best time to be buying.

The best investors lack this “tribal” gene to follow the crowd.

This might be the reason many great investors are loners or even Aspergerish.

The best investors are not influenced by what other people think. If you can disregard and not care what others think of you, you will be a great investor.

CEOs on the other hand are the opposite. They must be liked by everyone, and are required to empathise with their employees. The best investors overwhelming prefer solo sports like running, golf, swimming, seldom team sports like football. Shelby Davis was one of the investment titans of his generation and was renowned for being a loner and spending all day reading annual reports. Buffett also spends most of his time alone in Omaha, reading annual reports.

Templeton: “You have to buy at a time when other people are desperately trying to sell.” He later coined a marvelous phrase to describe these moments when fear and desperation go viral: “the point of maximum pessimism.”

At the start of WW2, the Dow hit a low of 112, down from a high of 381. He predicted US would inevitably join, and things would be come more in demand during war, not less. He asked his broker to put $100 into 104 companies that had been so battered by the Great Depression and were trading for less than $1. His broker said, that’s unusual but we’ll do it, but we’ve eliminated 37 that are already in bankruptcy. He said, no! Don’t eliminate those. They might recover.

Templeton said so much bad news was priced into the market that the odds were stacked overwhelmingly in his favour. It was “commonsense arithmetic”.

The markets got worse, Dow slumped to 92 after the attack on Pearl Harbor. Templeton held.

In 1942, the market took flight as the US fortunes in the war started to change. He made profit on 100 out of 104 of the stocks, and made 5x his investment.

Templeton’s six rules:

• Check your emotion. Most people lose when they are excessively careless or optimistic in good times, and too pessimistic in bad times.
• Check your ignorance, which is an even bigger problem than emotion. People buy with the tiniest amount of information. They don’t really understand what they’re buying. Investing takes a huge amount of investigation. Don’t fool yourself into thinking it’s easy to build a great investment record. Do you have more knowledge and experience than the professionals? If not, don’t try to beat them. Don’t lose money carelessly.
• Diversify. Even with mutual funds, you buy at least four or five, each with different focuses.
• Patience. You don’t know how long it will be before the market agrees with you. You must be willing to endure many painful years.
• Look for bargains by looking at the stocks which have performed most dismally in recent years. Where the outlook is worst is where you will find value.
• Don’t chase fads. The point of maximum optimism (fads) is when to take profits. 

Focus on what you can control. You cannot control when the war ends or interest rates. You can focus on yourself, disciplined research and making the best judgements you can.

Howard Marks

Howard Marks runs Oaktree, famous for their low-risk, value oriented investing with superb results. Buffett says when he sees a Marks memo in his email, it’s the very first thing he reads.

Efficient markets theory (that all assets are always fairly priced) is a valuable theory, but cannot always be true in reality. It’s more likely that it applies mostly to large cap stocks, which are analysed by thousands of funds and investors constantly. In smaller caps, markets will be less efficient.

For this reason, if you want to invest in large caps it’s better to index, because chances of finding something undervalued are poor.

Any asset can be worth buying if the price is low enough. Marks believing “buying cheap” is the number one precursor to success, and overpaying is the greatest risk. So the essential question to ask is always — is it cheap?

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

Luck is always a factor. Hard work alone is not enough, and intelligence is not enough. There are many intelligent people who worked very hard and just got unlucky.

There are two classes of forecasters — those who don’t know, and those who don’t know they don’t know.

The future is influenced by an almost infinite number of factors, and so much randomness that it’s impossible to predict the future. Recognising this impossibility is a huge advantage, because you know understand your boundaries. Marks spends zero time trying to forecast interest rates or inflation or GDP. 

Don’t time the market. From 1926 to 1987 the return in stocks was 9.44% pa, but if you had gone to cash and missed the best 50 of those 744 months, you would have returned nothing. Trying to time the market is a source of risk, not protection.

Avoid future oriented investments. This rules out tech stocks and anything faddish. Nifty Fifty stocks were similar to FANG stocks which crashed heavily in 1974 after soaring valuations. FANG will probably be similar.

View the world as oscillating and cyclical, rather than moving in a straight line. Economies expand and subtract, credit eases and tightens. The cycles will always self-correct, humans always overshoot, so the pendulum always has to swing back eventually.

Most investors grow complacent when times are good. Marks grows more vigilant, because he realises the pendulum may be coming to end of its arch.

Marks tries to predict the present, rather than the future, because the present is knowable. Are investors appropriately skeptical? Are they ignoring risks and overpaying? Are valuations reasonable historically speaking? When investors are getting rich and less afraid of losing money and willing to chase lush gains, that’s a signal for caution.

Don’t try to know the future. Instead, try to prepare for an uncertain future. Understand if you’re currently driving on an icy road or a sunny day.

Of all the cycles Marks has studied, none seems to him more predictable than the credit cycle. “Prosperity brings expanded lending, which leads to unwise lending, which produces large losses, which makes lenders stop lending, which ends prosperity, and on and on.”

In 2008, when the credit collapse happened, Lehman announced the biggest bankruptcy in US history. It was greatest panic of Marks career. He turned bullish for the first time in years. On the day Lehman died, Marks started invested half a billion a week.

He wrote to his investors — we only have one choice — to assume this isn’t the end, but just another cycle. (Makes perfect sense!)

You can simplify every downturn to — either the world ends or it doesn’t, and if it doesn’t end and we didn’t buy, then we didn’t do our job. That makes the decision awfully straightforward.”

Skepticism is a huge asset. Always be skeptical. But skepticism isn’t just being pessimistic when people are excessively optimistic. It’s also being optimistic when people are excessively pessimistic. You can use cyclicality to your advantage by behaving countercyclically.

Everything is impermanent. The financial markets provide us with many examples of this Buddhist teaching. The Asian “economic miracle” was followed by the Asian financial crisis of 1997; the dot-com mania of the late 1990s was followed by the crash of 2000; the housing bubble was followed by the credit crisis, which was followed by an epic bull market that began in 2009; then, in 2020, the market dropped 34 percent in twenty-three days before surging almost 40 percent in the weeks that followed.

Even if things are always changing, we are not powerless. We can make our portfolios unfragile. Don’t use leverage and don’t try to maximise everything. Simply spending less than you make, living within your means. Never operate at the very limit. Never put yourself in a position where you’re forced to sell or do the wrong thing.

Eveillard

The future is certain, you want to minimise your risks.

Benjamin Graham wrote, To distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.

Margin of safety is buying stocks at a favourable discount to their appraised value. The gap between price and value provides a cushion to absorb the impact of a miscalculation.

However, even though undervalued assets give investors are much better chance at profit or loss, it’s still not a guarantee. The answer for that is diversification.

Eveillard followed this strategy, scavenging for stocks that were at least 30–40% cheaper than his estimation of their value. He based this on a conservative view of what an acquirer might pay in cash for the entire company. He owned more than 100 stocks. Buffett held many less, but Eveillard was “too skeptical about my own skills”.

“To successfully invest you do not need a stratospheric IQ or inside information. You need a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework.”

Eveillard’s career is testament that value investing requires extreme patience. His fund dwindled to 2 billion during the dotcom boom because he refused to participate. The bank who owned his fund eventually sold him off, in January 2000. Then in March, the tech bubble burst. His fund outperformed the NASDAQ by 40%+ over the next 3 years, and his fund grew to $100 billion.

As a measure of prudence and liquidity, Buffett and Munger never have less than $20 billion in cash. Always keep enough cash in reserve so you’re never forced to sell stocks. Avoid speculating on hot stocks with no margin of safety. Bypass weak balance sheets.

Investing is about preserving more than anything. Not gains. If you achieve reasonable returns and suffer only minimal losses, you will become a wealthy man. Considering the downside is the single most important task of an investor. 

Being successful as an investor is as much about what you don’t own as what you do own. Simply sidestepping disasters can make all the difference. 

Matthew McClennan

The goal is not to become rich quickly. It’s resilient wealth creation.

Understand that everything eventually fades. Ninety-nine percent of all species are now extinct. It’s the same with businesses. “Businesses that are robust today will not be robust in the future.”

McClennan owns about 140 businesses, to account for his own error. Benjamin Graham’s strategy of de-risk via diversification. He is also content to wait 10 years for the market to realise his expected valuations, and also to let the cash pile up when prices are too high. His most critical idea is the importance of saying no. The idea is to win by not losing.

Moments of extreme pain are followed by new opportunities. The late nineties were brutal for value investors, but the early 2000s were a golden age. If you were able to endure it, the upside was enormous. In investing so much hinges on your ability to survive the dips.

“Since 1926, the vast majority of the market’s performance came from about 4 percent of stocks. If you try to be too concentrated, your chances of being in that right 4 percent is quite low.” (this is the argument for indexing).

Buffett

Buffett’s four criteria for selecting stocks:

• A business we can understand
• Favourable long term prospects
• Operated by honest and competent people
• Available at a very attractive price

Will Danoff

Stocks follow earnings.

Find best of breed businesses that will grow to be bigger in five years.

If a company doubles its EPS in the next five years, the stock price is also likely to double. Simplicity wins.

Greenblatt

Joel Greenblatt investing philosophy: Figure out what something is worth and pay a lot less. Everything else is irrelevant.

Some investors get rattled by news. But if there’s a debt crisis is Greece, are you going to sell a chain store you own in Texas because of something happening in Greece? No! But that’s what people do.

If you don’t know how to value a business, you should index. Buying businesses you don’t know how to value is idiotic.

Greenblatt’s method of valuing business:

• DCF analysis.
• Relative value, comparing it to the price of similar businesses
• Acquisition value, what an informed buyer might pay for it.
• Liquidation value, what it would be worth if you sold its assets.

The market is extremely rational in the short term, but surprisingly rational in the long term.

You can find bargains in small stocks with low liquidity, as institutions cannot buy them.

Focus on not losing money. Don’t buy more of the stocks you can make money on, buy more of the stocks you can’t lose money on.

Buffett made an early fortune trading in and out of mediocre companies. But as the fund grew he needed to scale more. Munger influenced him to buy wonderful businesses at fair prices, rather than just cheap businesses.

• Your strategy doesn’t need to be optimal. It just need to be sensible and “good enough”.
• Your strategy should be so simple and you should believe in it so well that you can stick through it during difficult times.
• Ask yourself if you have the skills to really beat the market.
• Remember you can be rich and successful even if you don’t beat the market.

Sleep and Zakaria

Destination analysis — what is the intended destination for this business in twenty years? What must management be doing today to raise the probability of arriving at that destination? And what could prevent them from reaching it?

Short term outputs such as — what will profit be next year — are not useful.

Scale economies shared. This is the idea that if a company is able to keep costs low and pass savings onto the customers, the customers will spend more money with them and not go to competitors, and the company will scale. Costco is the best example — $45 membership and then they keep prices so low that customers will not shop anywhere else. This compounds into massive equity. Sleep and Zakaria accumulated in the $30s and the stock now trades at $400. Other big wins they had were ASOS ($3 to $70) and Air Asia.

Amazon was the big winner of scale economies shared. Bezos at one point removed the light bulbs from the vending machines just to save $20k in annual costs. Bezos explained “relentlessly returning efficiency and scale economies to customers in the form of lower prices leads over the long term to a much larger dollar amount of free cash flow.” When Amazon Prime was launched — $79 per year for free shipping, free movies, TV, cloud storage, it was clear that Amazon was running the Costco model. Sleep and Zakaria started accumulating aggressively at $30 per share, betting 20% of the fund’s assets. In 2008 the market crashed. They had an emergency meeting, discussed possible insolvency, but decided to double down, buying even more Amazon, Berkshire, Costco and ASOS. Over the next 4 years, the market recovered and the fund returned 404%.

In short — focus on the long term, and focus on businesses that share prosperity with their customers, and those are the ones who will continue to grow and compound. Detach yourself from the drama and take exceptionally long views. That’s how you hold Amazon from $30 to $3000 over 16 years.

Tom Gayner

This is the guy who manages 21 billion in assets and focuses on being directionally correct.

For example, running 5 minutes every day. Or instead of eating 100 donuts per year, just eat 20 donuts per year. Or losing 1 pound per year over 20 years. Everything is reasonable, but will compound.

Rule 1: Seek profitable businesses with good returns on capital and not too much leverage.

Rule 2: Management team must be equally talented and honest.

Rule 3: Company should have ample opportunity to reinvest profits.

Rule 4: Must be available at a reasonable price.

Rule 5: Makes sense to invest in it with a forever time horizon.

The real secret of Berkshire’s success: It was a failing textile company, but the assets continued to get reinveted in greener pastures. The secret was the person doing the reinvesting was a genius.

One of his investments — Diageo — owns the Johnnie Walker brand, a 200 year old whiskey. “That seems to be a pretty durable thing. I just try to find things like that.”

Don’t trade things — hold onto good things when you find them. “It’s been my experience that the richest people were those who found something good and held onto it. The most unhappy and least successful are those that are always chasing the next big thing.”

Take a lesson from Jeffrey Gundlach, who oversees $140 billion. He says he’s wrong 30% of the time. So he asks one critical question — if I assume I’m wrong on this investment, what’s the consequence? Then he structures the bet so it won’t be ruinous. “Make your mistakes non fatal. That is fundamental to longevity and that’s what success is — longevity.”

You don’t need to be the best at anything. Just be dependable. Do it over and over and over again, and stay in the game. Over time you might even become number one, because the competition thins out so much over time.

You cannot control the outcome. You can only control the effort and the dedication and the giving of 100% of yourself. Then whatever happens, happens.

Jeff Vinik

“The best fund manager of his generation” at Fidelity. 

Why he’s so successful — “I’ve used the same consistent approach to investing throughout my career — individual companies with good earnings outlooks at reasonable valuations.” For example, he made a killing on little mundane restaurant stocks that grow earnings 20% per year trading at 12x earnings. “That’s the real show and how to make real money.”

Work hard — harder than everyone — read more cashflow statements, more annual reports — knowledge compounds over time.

Lountzis

Read the same books over and over. Etch the principles into your brain. Constantly be reading and learning. “You can’t become Roger Federer by not playing tennis.”

Lountzis strategy is a portfolio of fifteen intensely researched stocks. Focus on businesses with leaders who are creative, adaptable, visionary and have “enormous courage”.

Problem: Qualitative factors are not present in financial statements. You need to determine adaptability, courage. This means you need to operate more like an investigative reporter than an accountant. Businesses change rapidly and become obsolete. You need to be able to see around corners and get insight beyond numbers. 

Geritz

You don’t need to be watching the news to find out what’s changing in the world every ten minutes. It is more valuable to travel, read, think deeply about what the world will be like in 10 years. This gives you a huge edge over investors just watching markets go up and down.

Charlie Munger

Don’t try and be smart. Just identify all of the disasters and say, “What caused that?” and try to avoid it. To succeed in life, you mostly have to just avoid being an idiot.

Ask somebody how do you help India? Well, the first question should be to ask, how could I really ruin India? And then just don’t do any of those.

Apply it to all decisions, like getting married, or buying a stock. Don’t ask yourself, is it going to be wonderful? Ask yourself, is it going to be a disaster? Don’t just find out what’s good and try to get it. Find out what’s bad and try to avoid it.

Try to shun areas where you have no special insight or skill. Don’t pay too much. Don’t invest in things you don’t understand. Don’t invest with crooks or idiots. Avoid deeply cyclical stocks. Avoid faddish stocks. Aim to have a portfolio of undervalued, understandable, financially stable, profitable, growing businesses run by honest people.

Buffett says he and Munger avoid businesses who’s futures they cannot evaluate, no matter how exciting their products might be.

Tom Gayner — If I’m in a bar without my wife, I might ask myself, what would be a bad thing, and how would I avoid it? The answer would be — have two drinks instead of ten.

Munger — never buy a cyclical stock at the top of a cycle. People do it all the time, it’s so obviously stupid.

You are going to screw up. The question is — can you recover? That’s what the margin of safety is for. To make sure your mistakes are not too big.

Aim to generate a high rate of return over the next 7 years. For mid caps, a good minimum is 12% pa. For small caps, 15% pa.

Humility is really important. Always be aware of your own limitations.

Always be aware of the power of incentives. Ben Franklin said — if you want to persuade, appeal to interest, not reason. Never think about something else when you should be thinking about the power of incentives. 

Incentives are pivotal in all areas of life. The Soviet Union suffered from communism’s “ignorance of the power of rewards”, which disincentivised productive work.

Munger — Always fear professional advise when it is especially good for the advisor.

Munger — 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 to prioritize information that only reinforces what we believe.

Don’t overestimate your talents. Ben Franklin — the investors chief problem, and likely his worst enemy, is likely to be himself.

Aim to seek out “disconfirming evidence” that might disprove your most cherished beliefs. Study counterarguments so you can articulate them as accurately as if they were your own views.

It is harder to be objective about a stock once you own it. Therefore, you should perform devils advocate reviews of your biggest holdings. Reassess and make an argument for why it should be sold.

Make bull/bear analyses for every company you analyse. It’s very important to identify where you might be wrong. Always strive to disprove your hypothesis.

HALT PS — Hunger, Anger, Loneliness, Tiredness, Pain, Stress all lead to poor decision making. 

MENS — Meditation, Exercise, Sleep, Nutrition — all of these improve brain function.

Before you make a decision, always consider if you need to HALT PS or MENS.

Construct a lifestyle that is conducive to calm resilience. Munger spends time reading books, playing bridge, golfing or fishing. Keep an uncluttered schedule. 

You’ve got to play in a game where you’ve got some unusual talents. You don’t want to play basketball game someone who is eight foot if you’re five foot. Find a game you have an advantage in, and it has to be something you’re deeply interested in.

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. Don’t try to avoid it. It will come.

Diversification is a great rule for those who don’t know anything. But Munger’s strategy is to wait for rare opportunities where the probability of gain far outweighs the probability of loss. When they arrive, grab them with gumption.