The iron rule of life is that only 20% of the people can be in the top fifth. That’s just the way it is.

What economic laws have worked best for Berkshire?

It is all a matter of trying to find businesses with wide moats protecting a large castle occupied by an honest lord. Moats might be a natural franchise, brand loyalty, or being a low-cost producer. In a capitalistic society, all moats are subject to attack: if you have a good castle, others will want it. What we want to figure out is what keeps the castle standing and how smart is the lord. [Charlie Munger: We also like to look for low agency costs on that lord, economies of scale and “economies of intelligence.”]

Buffett elaborated on the “economies of intelligence”: the idea is to find businesses where you have to be smart only once instead of being smart forever. Retailing is a business where you have to be smart forever: your competitors will always copy your innovations. Buying a network TV station in the early days of television required you to be smart only once. In that kind of business, a terrible manager can still make a fortune. Given the choice between the two (a business where you have to be smart forever or one where you have to be smart once), Buffett advised, pick the great business–be smart once.

Be smart once!

What economic laws have worked best for Berkshire?

There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.

Charlie Munger on business forecasting.

When Charlie and I disagree, Charlie says, “In the end you’ll see it my way, because you’re smart and I’m right!”

You don’t have to have perfect wisdom to get very rich – just a bit better than average over a long period of time.

Charlie Munger. Applies to more than investing, of course.

I never took a business class, except accounting. When I was a boy, there was a man who came to the club every day at 10:30am. I asked my dad about him – he had such a good life! My Dad said, “He gathers up and renders dead horses.” I learned from that.

When I was young, I read The Richest Man in Babylon, which said to under-spend your income and invest the difference. Lo and behold, I did this and it worked. I got the idea to add a mental compound interest too, so I decided I would sell myself the best hour of the day to improving my own mind, and the world could buy the rest of the time. It sounds selfish, but it worked.

Charlie Munger on investing in your brain. The Richest Man in Babylon looks pretty sensible.

Buffett FAQ

A treasure trove for Warren Buffett (and Charlie Munger) fans. (via)

Goal – To compile and order the teachings of Mr. Buffett to maximise their benefit and usefulness to others. All material below is from question and answer (Q&A) sessions with Mr. Buffett.

Buffett FAQ