His philosophy makes his investment criteria clear and allows him to identify “high probability events” with reasonable certainty. (Location 1307)
Buffett and Soros have both developed highly detailed and unique investment philosophies. (Location 1310)
What the Master Investor is measuring against, of course, is his investment criteria. His investment criteria tell him what kind of investment to buy and its specific nature, when he should buy it, and when he should sell it. His criteria also define how he goes about searching for investments that meet them. (Location 1372)
Andrew made a common mistake. He assumed that because he was successful in real estate he could be successful in every investment market. (Location 2071)
You can expand your circle of competence by learning and testing a different way of investing. If you’re willing to pay your dues again. (Location 2959)
When he started his partnership in 1956 he would tell prospective investors: “I’ll run it like my own money, and I’ll take part of the losses and part of the profits. And I won’t tell you what I’m doing.”4 (Location 3011)
Until he met Charlie Munger, Buffett refused to talk to anyone about any of his investments until after he had sold them. And often, not even then—in case he wanted to buy them back sometime in the future. (Location 3025)
Another reason Buffett keeps his cards close to his chest is that “good investment ideas are rare, valuable, and subject to appropriation just as good product or acquisition ideas are.” (Location 3031)
A secretive person by nature, he wanted his fund to have a very low profile. When, in June 1981, he was featured on the cover of Institutional Investor, he was depicted “as something of a mystery man, a loner who never telegraphs his moves, who keeps even his associates at a distance.”10 (Location 3038)
Soros didn’t want anybody to get wind of what they were up to. “You’re dealing with a market. You should be anonymous,” (Location 3048)
Unable to find out what he is doing, other traders will try and discern his “footprints” in the market, as happened in October 1995 “when a burst of speculation that Soros was shorting the French franc helped drive that currency sharply down against the German mark.” (Location 3057)
Quite likely, Resorts stock would have gone up anyway. But by talking about his short position Wilson effectively invited the market to squeeze him. Which it did. (Location 3069)
When he saw what was going on, he quietly covered his shorts and went long to profit from Wilson’s folly. (Location 3071)
“Speculators ought to keep quiet and speculate.”18 (Location 3073)
While Buffett loves to talk about business and investing any time of day or night (but won’t say a word about anything he’s actually doing in the markets), (Location 3084)
The Master Investor thinks independently. He simply doesn’t need someone to verify the quality of his investment ideas. And that is why he keeps them to himself. (Location 3100)
that he loves dealing with people as well as numbers, and he’s an incredibly good judge of character. (Location 3119)
In contrast to Buffett, delegation doesn’t come naturally to George Soros. “I’m a very bad judge of character,” he admits. “I’m a good judge of stocks, and I have a reasonably good perspective on history. (Location 3163)
Not surprisingly, by 1981 Soros was breaking under the strain, and he had his first losing year. The fund lost 22.9 percent. Worse, a third of his investors pulled their money out, fearful that Soros had lost his grip. (Location 3176)
This turned out to be a mistake, partly because Soros was delegating the task he did best: investing. Soros describes the three years that followed as lackluster ones for the Quantum Fund. But by taking a backseat he was able to recover from a problem he (like all traders) faced, that an investor like Buffett doesn’t. It’s called “burnout.” (Location 3180)
The great investor, like the great chess player, is determined to become a master of that particular craft, sometimes without caring whether he only gets rich or immensely rich. It has been rightly said that the reward of the general is not a bigger tent but command. It is, in other words, succeeding in the process itself that fascinates the greatest investors. (Location 3438)
Every time your opponent wins a point, the hole gets a bit deeper. If you have ever watched a tennis match (or, indeed, any other sports game) you can tell, from the expression on their faces, which players have this mental focus. They look defeated. Even though the game isn’t over, even though other players have come from this far behind and won, it’s over for them. (Location 3450)
Where you have your mental focus determines your outcome. The average investor makes the mistake of focusing on the profits he hopes to make. In the extreme case, the investor “falls in love” with his investments. Like the gold bug, or the investor caught up in the tech (or other) bubble, he firmly believes, “These investments will make me rich.” (Location 3457)
“fascinated by chaos. That’s really how I make my money: understanding the revolutionary process in financial markets.” (Location 3460)
So there will be never-ending opportunities for the creation and testing of hypotheses to profit from chaos. (Location 3462)
For many successful investors, the most rewarding and exciting part of the process is the search, not the investment he eventually finds. “[Investing] is like a giant treasure hunt,”6 says stock trader David Ryan. “I love the hunt,”7 says another. (Location 3473)
Only a person whose source of satisfaction is these activities will devote the time and energy necessary to master them and reach Master Investor status. (Location 3479)
When Warren Buffett describes his typical day, it’s clear that he, too—when he’s not talking to his managers (monitoring)—focuses primarily on searching: Well, first of all, I tap-dance into work. And then I sit down and I read. Then I talk on the phone for seven or eight hours. And then I take home more to read. Then I talk on the phone in the evening. We read a lot. We have a general sense of what we’re after. We’re looking for seven-footers. That’s about all there is to it.9 (Location 3480)
when he’s not talking to his managers (monitoring)—focuses primarily on searching: (Location 3480)
But his real pleasure comes from his involvement in the investment process. His priority isn’t the investment he makes but the criteria he uses to make it. Any investment that does not meet his criteria is simply unappealing. (Location 3486)
Warren Buffett doesn’t just enjoy reading annual reports. It’s his favorite pastime. “He just had a hobby that made him money,” said Ralph Rigby, a Berkshire Hathaway textile salesman. “That was relaxation to him.”4 (Location 3504)
The lifestyle of the trader could not be more opposite. The extreme is the trader with quote machines all over his house—even one in his bedroom and bathroom—so he can check prices anytime of the day or night, regardless of what he is doing. Michael Marcus describes the time when he was trading currencies heavily: (Location 3510)
One reason the Master Investor is so successful is that investing is all he does. It’s not just his profession, it’s his life. And so he thinks about investing day and night—even dreaming about it, as Soros did. (Location 3557)
“AROUND HERE, WE EAT OUR own cooking,” says Warren Buffett about where he puts his money. Ninety-nine percent of his net worth is in Berkshire Hathaway stock. (Location 3573)
So if he needs more spending money, what does he do? Applying the same methodology that made him a billionaire, he buys stocks in his personal account—taking advantage of opportunities too small to make a difference to Berkshire’s net worth; selling something when he needs a little extra cash. (Location 3577)
There’s nothing controversial about that. Indeed, you’d expect to find successful businessmen with most of their net worth in their own business. That’s where they know how to make money more easily than anywhere else. That’s what they love to do. (Location 3587)
Not much. But he could read a balance sheet. And it was clear—to him—that the breakup value of the company of $20 a share exceeded its market price of $7.50 with a wide margin of safety. (Location 3657)
To say this was a formative experience would be an understatement. But Icahn didn’t react as many might have done—by looking for some safer, securer field, like fulfilling his mother’s dream by becoming a doctor. (Location 3671)
you could make it just as a fast—if you followed a sound strategy instead of, as he had been doing along with his clients, mimicking the herd. (Location 3673)
He expanded into arbitrage. And noticing a similar pricing inefficiency in closed-end mutual funds, which were almost all trading at significant discounts to the value of the assets they owned, he started buying them up. (Location 3682)
Instrumental in Icahn’s success was his associate Alfred Kingsley, who joined him in 1968. Icahn delegated the number crunching to Kingsley, who would plow through the data to identify potential investment targets for Icahn to choose from. (Location 3689)
realized they could apply the exact same strategy they’d used to make money in closed-end funds to other listed companies trading significantly below their book value. (Location 3691)
Another factor that appealed to Icahn’s distaste for losing money was that in the 1970s inflation was soaring; values for tangible assets like gold and real estate had skyrocketed, but these changes had yet to be reflected in corporate balance sheets. In this environment, plenty of stocks were trading below their book values, but thanks to inflation their discount to liquidation value was even higher. This offered Icahn an enormous margin of safety. (Location 3695)
large positions in “undervalued” stocks and then attempting to control the destinies of the companies in question by (a) trying to convince management to liquidate or sell the company to a “white knight”; (b) waging a proxy contest; or (c) making a tender offer and/or (d) selling back our position to the company.2 (Location 3702)
“Empiricism says knowledge is based on observation and experience, not feelings,” Icahn said. “In a funny way, studying twentieth-century philosophy trains your mind for takeovers.… There’s strategy behind everything. Everything fits. Thinking this way taught me to compete in many things, not only takeovers but chess and arbitrage.”4 (Location 3731)
At any one time they were entirely focused on just one or two investments. Like Buffett and Soros, Icahn always buys as much as he can of the company that is in his sights, sometimes stretching his resources to the limit. He completely ignores the traditional advice about diversification—and reaps enormous rewards as a result. (Location 3755)