Charlie Munger

https://www.youtube.com/watch?v=3WkpQ4PpId4
How to pick a company?

- Understandability: We have to deal with things were capable of understanding

- Intrinsic Advantage: Then we gotta have a business with some intrinsic characteristics that
give it some competitive advantage

- Great management: Then wed prefer a management with great integrity and talent
- Safe Price: Finally, doesnt matter how good it is, price wont be infinite, so we have to have a
price that makes sense and gives a margin of safety.
- It is a very simple set of ideas. It hasnt spread faster because its too simple. Professional
classes cant justify their existence if thats all they have to say. If its all so obvious and simple,
what would they have to do with the rest of the semester?
- Business value mindset: We have the mindset of someone who were going to buy the whole
business. We want the price for the business (so calculated) to look very attractive. So we buy
shares that are lower than what a rational person would buy the whole business.
On Coca-Cola success
- When we bought it, it was succeeding mildly and it was cheap in relation to what was plainly
going to happen. That was a valuable insight.
- There are times when even a company as big as coca-cola is too cheaply priced by the market,
considering what it going to do for the shareholder. And there are times when we can figure that
out, others we cant. When we do figure out, we tend to go heavily. We were very aggressive
with coca-cola.
What Buffett learned from Munger
https://www.youtube.com/watch?v=7I7utGAEhDI
Munger: I observed things, Id seen so many idiots get rich in easy business. Naturally I
wanted to be in an easier business
Buffett: Charlie analysed his clients business more than they analysed it themselves. What would
work and what wouldnt and why. Its so simple.
Munger: If you wanna ruin your life, try changing people. So we only deal with companies that have
good managers, we dont expect to change them. We make silk purses with silk.

One-on-One with Charlie Munger | 2010

https://www.youtube.com/watch?v=BPIWCdrH4kM
What is your guess on the economy right now?
- Me and Buffets system is to swim as confidently as we can, sometimes the tide will be with us,
sometimes against us, but we dont much bother with trying to predict the tides. I recommend
the same attitude for you. It is a delusion to try guess the economic cycles, very few people
do it successfully, and some of them by accident. Swim as competently as you can knowing
youll have your share of good and bad tides in life.
- Never feel sorry for yourself, never ever, no matter what.
- Never have envy. Its the only one of the deadly sins youll never have any fun at all.
- Treat those two impostors, success and fame, just the same.
- I lived in the 30s. People had to move to their relatives houses. My grandpa cut his house in half
and moved my uncle in. It was pain and trouble. But the ones who just get going eventually did fine

- Money tends to corrupt, and easy money tends to corrupt absolutely.

Many accountants are too mathematical and not rational enough when dealing with humans.
The CEO culture is likely to promote people who are very competitive and very driven and
aggressive about accomplishing what they wanna do. I dont believe in being that competitive. If

somebody else makes a lot of money or reports a lot of money, let them! It is pernicious and it has
caused huge problems.
continue https://www.youtube.com/watch?v=BPIWCdrH4kM (40m)

Jim Simons
A Rare Interview with the Mathematician Who Cracked Wall Street | Jim Simons | TED Talks
25 sept. 2015
https://www.youtube.com/watch?v=U5kIdtMJGc8
- Trend following (graph/math) wouldve been great in the 60s, it was ok in the 70s, by the 80s
wasnt good anymore, because others started doing it.
- We stayed ahead by finding other approaches, shorter term approaches to some extent. The
real thing was to gather a tremendous amount of data. In the early days it was by hand, wed
go to the Fed Reserve and copied interest rate histories and stuff like that. We had a lot of
data and very smart people, what was the key.
- I didnt really know how to hire people to do fundamental trending. I couldnt make a business
out of that. But I did hire scientists, because I had a taste for that. Gradually these models got
better and better.
- In a certain sense what we did was machine learning. It worked and still does. We looked at
everything: anual reports, quarterly reports, historic data, volumes, you name it. Youre
looking for anomalies. Any one anomaly might be just a random thing, but if you have
enough data you can tell if its not. You can see an anomaly that persists for a long time, so
the probably or randomness is not high.
- But these things fade after a while. Anomalies get washed out.
- We didnt just hire mathematicians, but astronomers and physicists and stuff like that.

James Simons (full length interview) - Numberphile

https://www.youtube.com/watch?v=QNznD9hMEh0
- I was never the fastest guy in the world (in math), but I just liked it

Seth Klarman interview by Charlie Rose

https://www.youtube.com/watch?v=ohtAnE8C4Ao
- Investing is in the intersection between economics and psychology. The Economics, the
evaluation of a business is not that hard. The psychology: how much do you buy, buy now or
wait for a lower price, what to do when it looks like the world might end, those things are harder.
That comes with experience, by having the right psychological make up.
- My psychological make up:
- value investors have to be patient, disciplined
- but the real thing is: dont be greedy.
- If youre greedy in your leverage, you blow up.
- Every financial blowup is because of leverage.
- you need to balance arrogance and humility
- when you buy anything, its an arrogant act: I know more than everyone else, so Ima pay
more and buy it
- but you need to humility to say I might be wrong, u have to do that on everything
- Warren buffett went off from 3 stages:
- buying cigar buffs and getting the last three puffs for free
- buying great businesses for cheap prices
- buying and holding great businesses at so so prices
- buying weird securities from crappy businesses at better than market prices
- Im still in phase 1.
- I think Buffett is a better investor than me because he has a better eye towards a great
business. To me, most businesses dont look so great.

- Like Buffett, Im not focused on the variations of stock every day. I dont have a bloomberg on
your desk, I dont care.
- Were not traders

Julian Robertson, Founder & Former CEO - Tiger Management

https://www.youtube.com/watch?v=apco3D5B_7A
- Hedge fund managers should be smart and honest, also competitive.
- I think there is still huge opportunities in hedge funds, and this is the way to go. Its gotten
tougher because were competing with more hedge funds rather than individual investors.
Julian Robertson
http://www.bloomberg.com/news/videos/b/5cdd4d5a-cede-4ae8-b5af-096b5fb81b4f
- Nehal Chopra: We have a very disciplined and targeted process. We focus on 3 things:
- Finding a great CEO
- Spend a lot of time understanding him
- his background
- his track record
- equity incentive
- Finding a good business that is very cheap
- All of this focused around change
- Nehal
- Change creates confusion both inside and outside an organization
- Confusion creates dislocation of value
- Ex: there was a company that purchased another one, that made the stock price drop but
increased earnings. But the change in stock price created confusion

Julian Roberstson Helps You Pick a Stock to Buy

https://www.youtube.com/watch?v=yKW1XB5w3qM
How to pick a stock to buy:
- good management
- good product line
- moving ahead and stockholder oriented

Julian Robertson - Opalesque.TV interview

https://www.youtube.com/watch?v=hgbYIA6BIwU
What does it take to be a successful hedge fund manager?
- Absolutely pure honest
- Intelligent
- Competitiveness and ability to get along with a team
- Real interest in making the world better

Michael Steinhardt - Profiles in Leadership

https://www.youtube.com/watch?v=CWdFFY1lwLw
https://www.youtube.com/watch?v=4QgGJXK584k
- My father was a gambler, he was an intense, unusual man.
- A lot of people deny the gambling aspect of the stock market. I dont, it has that element and you
have to deal with that.
- My father gave me $5 thousand in stocks, and that had a major impact in my life, when he
trusted that to me it became my main responsibility and focus. From the age of 13 on, the stock
market became my obsession, my life.

- Then I went to school, focused on finance, graduated at 19 and immediately got a job in the

stock market, from that point until I was fired at 54 yo, thats all I did. It really consumed my life.
All I cared about was my own ability to pick stocks, to make judgements on what was gonna go
up and what was gonna go down, using all available methodology to do that - which related to
economics, individual finance, many things. It was a very silly endeavor. And behind all I studied
and dedicated, it was the feeling that I had to follow my father as a gambler. And what I did was
a form of sophisticated gambling. I was never 100% sure that gambling and stock market was
really in the end all that different.
In my business, I think because I started so early and was so focused on it, I was extremely
successful. When people ask me what to do professionally, what industry to focus, I always
answer that cliche : You should really do what you love. If youre lucky enough to love what you
do, that solves a lot of problems. Find something you can devote your entire being to, something
that can catch you both intellectually and spiritually, and can be your lifes work in a wholistic
way. To me that was the stock market.
After a while I felt I had to so something else, in my late 30s I was gonna quite. My friends told
be to get a sabbatical year instead.
In my teens I became an atheists, and for most of my life I was a guilty atheist. I challenged
rabis in the issues of faith, and was never satisfied. Later in life I lost the guilt.
Jewish values are the best values human kind has created.
The cheapest education in the stock market is to put your own money on it, enough to get you
mad if you loose it. That process of wining or losing will force you to really educate yourself on it.
What is necessary for success with stocks? Luck, experience, talent?? I always answer that in
my case, I was much more intense about it than others, I really cared about it. When I lost, I was
really miserable.

Warren Buffett - Interview with MBA students

https://www.youtube.com/watch?v=ti1hjSZdEZY
- Its hard to evaluate the potential of a begginner, with no track record. When we buy a business,
we look for a managements thats been there for a long time and we can really see his track
record and know what were buying: how they behaved in difficult situations, how they treated
their employees
- The common thing about all great managers is that they do what they do from passion. 3/4 of
them are all financially independent, they dont need to go to work everyday. But they do
because they love, its creative, like a painting they see in their mind
- (on private equity) We dont buy anything we the idea that were gonna resell it. The family
businesses we buy come to us because they know that.

Michael Steinhardt (Bezinga interview on vimeo)

- These day, making 20% to 30% is unthinkable. I dont think managers even think about it. They
are much more interested in achieving, if possible, a very low double digit number, like 10-12%,
5 points higher than treasury return.

Steve Cohen (Investopedia)

"They taught you that 40% of a stock's price movement was due to the market, 30% to the sector
and only 30% to the stock itself, which is something that I believe is true. I dont know if the
percentages are exactly correct, but conceptually the idea makes sense.
"It's hard to find ideas that aren't picked over and harder to get real returns and differentiate
yourself. We are entering a new environment. The days of big returns are gone." Cohen has
mentioned a few times that it was relatively easy to earn money in the 1990s, and here, he is
referencing this point again.

Charlie Rose Show: Ray Dalio, Bridgewater Associates

https://www.youtube.com/watch?v=Ve2_5F_e8IY
- We all should recognize that we could be wrong. If we recognize that we can have a thoughtful
and fruitful dialogue

Carl Icahn & Bill Ackman FULL Joint Interview 2014

https://www.youtube.com/watch?v=y1PYvaCa2o4
Ps: Icahn is a shorter, activist economist
- Most CEOs today are not doing a good job. They shouldnt be there. And thats where were
making so much money. If I can make this of money, its because there is something wrong,
companies are not productive enough.
- A board should not tell a CEO what to do. But it should remove him if hes not productive.
- If a CEO is doing a good job, he shouldnt be afraid of me.
- Wall street put us into the mess, the fed took us out of it.
- Instead of keep printing money, we should worry about what managers are running the big
companies.
- Bill: Over the years weve come to this huge separation between the people who put up the
capital and people who make decisions that corporate level. And that distance creates risk.

Ray Dalio 2016 Bloomberg

- Cash returns 0%, bonds 2%, equity 4%
- The average investor shouldnt compete with us cause he will lose
- manufacturing services digital technology
- The way that we succeed is by having thoughtful disagreement. Im scared of being wrong, and
the key of our success is to find people who are smart and disagree with us, try to understand
them. You also have to bring your weaknesses to the surface. Radical truth and radical
transparency.

Carl Icahn | Wall Street Week | Episode 3

https://www.youtube.com/watch?v=4MislqNj9qA

- I read 3 books about poker and got 10 times better than all those guys, who never had read

anything in their lives. Its all mathematics. You gotta read, research. Every wee I would win 400
bucks, at the end of the summer I would have $2 thousand a month. After 4 years I had 10
thousand saved. My father and mother never asked me where I got the money.
I never fit in with anyone. I went to medical school for a while.
Tim Cook is a good manager because he breathes it, hes obsessed with it.
The most important thing in a company is the CEO, by far. There is nothing close.
The market is not a gambling casino, and this type of marketing too many people think it is.
Specially now with low interest rates its really a dangerous place.
You have to be obsessive, its more about that than talent.
I made a lot with arbitrage. And I was the only guy who could put it together with options.

- Activism: you would take a company with great assets and potential, but who were not making
any money. And you find the reason is management, and you cant get rid of it because there is
no accountability in the company. So we get on the board and clean the company up and make
money for all shareholders.
- Corporate america is a dysfunctional system, even worse than the political system. Because
there is no accountability. You cant get rid of bad CEOs.
Bill Ackman - Charlie Rose - 2013
https://www.youtube.com/watch?v=CLjKP1v2Rwk
- Problem with shorting stocks is that there is a large number of people who own the stock who
wont be happy, the CEO will not be happy with you
- We short very few stocks, this is the second large short Ive done in 10 years.
- The good things about shorters is that they are the early morning signal about a problem in the
business.
- Pyramid schemes dont care about the quality of the product they sell to people.
- Jim Chanos: one of the very well known shorters
- Like Buffett says: In the short term the market is a voting machine, long term its a weighing
machine, much more precise.
- Wall Street is the biggest engine for job creation. Enabling businesses to access capital, to grow.
- Were not gonna save the country with philanthropy, but with good economic policies that create
the right incentives, policies that will make us compelling globally.
- Why is hedge performance down?: There are a lot more participants, and also due to some
regulatory changes that made harder for hedge funds to make money. But its like the mutual
fund industry, or real estate also, as a collective its not attractive, but there are a few very good
managers who did much better than the market over time.

Jim Chanos: Tesla Is an Overpriced Car Company

http://www.bloomberg.com/news/videos/2015-10-12/jim-chanos-explains-his-short-of-teslasolarcity
- Becoming a car manufacture is much more difficult than becoming a high tech darling. Returns
are low, its capital intensive and you need huge networks. When youre selling 50,000 cars a
year these things are bells and whistles, but when you see 500,00 to 2,000,000 (like BMW) they
are essential.
- Elon Musks name has added something to the valuation of those 2 companies, but at the end of
the day, its not about personalities (managers), its about business models.

Jim Chanos - Wall Street Week | Episode 6 (may2015)

https://www.youtube.com/watch?v=DOlWGR74rBY
- I was fascinated with the stock market. My dad had turned me onto the stock market
when I was a kid.
- First I was an analyst on an investment bank for a couple of years. Then I became an analyst at
a retail shop in 1982.
- First company I looked at was Baldwin United, piano company who morphed into financial
services, insurance. It turned out to be a fraud, and collapsed in 1983. From there New York
came crawling, I went to Atlantic Capital, then for the next 2 years I did sell side research writing
up lots of companies. And from there I started my own firm, Kynicos, in the fall of 1985.
- People often think of us short sellers as villains, but I think we are the only real time financial
detectives.
- Short sellers are the financial detectives, and regulators are the financial archeologists.
- Short selling occurs all the time in commerce and every day life. Anybody that receives
cash upfront for the delivery of goods and services in the future is engaged in short
selling.
- Insurances are a giant short selling schemes. They collect premiums upfront, they analyse
your life span or the risk of your house burning down, and pay out if those things happen.

- The financial economist Bill Sharpe confirmed that we need shorters as economic agents.
- When you short a stock, it can go up infinitely, down only to zero. But Ive seen far more stocks

go to zero than infinity. What you have to do managing a portfolio, is simply set capital limits on
each position.
- You have to say: how much of my capital for my clients am I willing to risk at anyone position?
Maybe its 2%, maybe 3%. In your case its never more than 5%.
- If we still love the idea, we just trim it back. But we never let one idea carry us out.
We assume the market will go up over time. So we structure our portfolios and our fee
structure so that we are judged against the market. Im always long the market and short my
stocks.
Analysing a company, its hard to identify a fraud on advance. What you are looking for is
- flawed accounting (and there is a lot of that)
- structurally unsound businesses
- businesses on the wrong side of a deep cycle
- so we look at those sorts of classic signs as opposed to just simply something that
seems expensive.
Market is unpredictable. So when constructing any portfolio, you need long stocks, bonds, real
estate and so on. There are times you can take more risk and times you can take less risk. Now
I think were in a point where one should take less risk.
(Larry, other guy): Trading against machines: you have to embrace what these computers are
doing: they are following orders. So, the market place has changed.

William Sharpe - 2010

There Are No Shortcuts in Investing: Nobel Laureate William Sharpe
https://www.youtube.com/watch?v=pGIzygsvqck
- My familys business was education. I gained a love of learning from my parents.
- First I had accounting and economics lessons. I loathed accounting, but I liked economy. I had
no notion of how I would make a living, but instantly I changed to economics major
- SCENARIO: investing in china
- Index fund managers (well diversified index funds, like S&P 500): just find out how many
shares are outstanding in every security in China, and buy 1% of every single company in the
chinese market
- Active managers: you research, learn about companies, study industries, visit plants, lord
knows what you do.. you got degrees at stanford, harvard, etc.. you find the companies that
are really cheap and disdain the companies that are really expensive. We call you active
because periodically you change your mind and you buy and sell things, so the brokers like
you and you get good seats at football games.
- After one year, the total chinese stock market returns 10%.
- Before costs, index fund managers get 10%
- Active managers get 20%, -5%, one who short stocks lose 80% for ex.
- But we need active managers to do that research and keep prices in line with the prospects
- Active managers provide a great service to keep markets well functioning so index fund
managers ride for free. Its a free rider problem.
- All of these stock picking magazines like forbes, fortune, business weeks, saying heres a hot
manager, heres a hot strategy, heres whats gonna win next year its all total bullshit!
- Some active managers are gonna beat index fund managers
- You may get to a market equilibrium, but then information changes and markets have to move to
a new equilibrium.
- Everybody can identify a bubble after it happened.
- Nobody can predict bubbles, but Robert Schiller predicted the tech bubble and the housing
bubble.
- Should people be allowed to put all their money in stocks or in an oil fund? I think not. Some
people put half or more of their retirement savings in the stock of their own company!
- Audience quesiton: What about Warren Buffett? Is he lucky or smart?
- Personally I think he is reeeally smart.

William Sharpe: the golden rules of investing

Sensible investing youtube channel
- There is a rule in real estate that the 3 most important things are location, location and location.
- For investing, my rule is diversifying, diversifying and diversifying.
- And then 3 more: keep cost low, keep cost low, keep cost low.
- The simplest way of doing that is a very broadly diversified, very low cost index fund.

Kynikoss Jim Chanos on Investing

- China establishes their growth (GDP), ex: Ok, our growth is gonna be 7%, how do we get
there?. And there are many corporations that do that to (laughs)

Michael J. Burry at UCLA Economics Commencement 2012 (The Big Short)

https://www.youtube.com/watch?v=1CLhqjOzoyE
- Different than how it was 20 years ago when I was at UCLA, today informalion swarms us,
comforts us, disrupts us. It's an age of infinite distraction for those so willing.
- Facebook, twitter, angry birds is arguably as addictive as any drug throughout history.
- The financial meltdown was both predictable and preventable.
- Accept the world for what it is, work hard to exploit the opportunities it presents and try to do so
in as just a manner as possible.
- You can work hard smart or work hard dumb.
- I began to doubt traditional education. I committed myself to educating myself as opportunities
arose.
- I read Liars Poker by Michael Lewis, and it nearly convinced me that even if I could become a
great money manager, I shouldnt.
- My interest in medicine faded as I studied the economics and regulations of health care.
- During medical school I put up a website with ideas on stocks and markets. As I graduated in
medical school in 1987, Microsoft offered me a dollar a word to write for the MS Money website.
- So during medical internship I was also running my website and writing for MS Money. I was
so desponded over my direction that I even applied to law school.
- I figured as long as I kept asking questions working so hard to answer questions, I would
eventually find my way.
- As I turned 29, I ran out of reasons why I shouldn't left medicine and start an investment firm.
- As should be the case more often than not, I simply weighted the pads before me without
considering the path on which I had been.
- As Scion capital, my job was to ask questions and seek answers. I mostly examined stocks and
bonds as long investments. One day I came across a subprime residential mortgage backed
securitisation. And I wonder if I could figure out any of that.
- Other questions soon followed:
- Why are home prices diverging up and away from the household income trend line?
- Anwer: if its not income, its leverage
- What exactly are the incentives of lenders that make mortgages only to sell them on
through the wall street?
- Answer: Volume, at the expense of credit standards
- When interest rates bottom, how far could lenders push mortgage terms in order to keep
refinance home prices and load volumes rising?
- The answer to this question would put a ticking timer on the boom and a day on the
crash.
- Back in 2005, other questions stood out:
- How much is consumer spending dependent on cash out refinancing?
- What percentage of jobs are dependent on the assumptions of rising home prices?
- Wont AIG have to start posting massive cash collateral for the first time if it were
downgraded?

- Isnt it worrisome that Fannie Mae can not find term sheets that describe the perfect hedges
against its massive mortgage portfolio?
- Are the rating agencies so conflicted that they could be this blind?
- In my letters to investors, I described a downturn that would be unprecedented.
- I was short 8.4billion dollars worth of subprime mortgages and certain financial companies.
The most we can loose was less than 100 million dollars, thanks to credit derivatives.
- At first we did lose. But latter it turned the table on wall street. I bet against america and
won.
- As it turned out
- information is not perfect
- volatility does not define risk
- markets are not efficient
- the individual is adaptable
- The next decade of your life, without marriage, kids, etc. is the most flexible and genius decade
of your life.
- You can leave here today and chose to never stop learning, never stop asking questions.

Michael Burry on the financial crisis (apr 2011)

https://www.youtube.com/watch?v=fx2ClTpnAAs
- Credit derivatives on an underlying asset could be worth multiple orders of magnitude more than
the asset itself is worth. Because all asset backed derivative securities settle in cash, pay as you
go. That was the secret sauce.
- Quantitative Easing: the govs borrowing of money for the purpose of injecting cash into
society bailing out banks, brokers and consumers is a short sided easy decision. For a
population that has not yet learned that short sided easy strategies are the route to long
term ruin.
- The toxic twins: fiat currency and an activist fed.
- Taxes need to be raised, spending needs to be cut, loopholes need to be shut if we have
any hope of returning to a stable base.
- Certainly home ownership should not be a policy of the US gov
- And the banking system needs substantial reform

Ray Dalio (2012)

http://www.achievement.org/autodoc/podcasts/artpodvid-1-dalio-ray-2012
- I started to trade stocks at 12 yo in the 60s, it was a boom period.
- The first part of life people tell you what you should do. The second part youre on your own.
- People like Steve Jobs, the shapers of things, they are not learners, they don't use the
memory part of their brain. Einstein sad that all the shapers of the world need to make
sense of things, need to pursue their own alternative paths.
- A great architect wanted to make houses his own way, but he couldnt. So he started with dog
houses, so every one appreciated his dog houses then he became able to do houses and
became one of the greatest architects of our time.
- Dont listen to other people, know what makes sense to you. Dont please others. If you
please others, you will loose yourself.
- Understand how reality works. I believe the world works like a machine. There is cause and
effect, and the same things happen over and over again. Everything is another one of those.
- What you know is so much less important than what you dont know. In recognition of
that, be open minded and look for answers. And in that process dont let ego pain stand
in the way. Dont follow, make sense yourself.
- A problem is a jam, it is a wonderful thing because it is a learning opportunity. That is where you
learn mostly. Get to the root cause of the problem, including your weaknesses, or of the people
around you. Then you can design a way of overcoming this problem each time it happens
(remember everything happens over and over again), and have the self discipline to do it.

- Summary:
- 1) going after your goals
- 2) encountering problems
- 3) appreciating and loving your problems
- the biggest barrier in getting to the root cause of your problems is ego, psychological pain
- when you face psychological pain, pause and reflect on it
- any type of pain means something is at odds
- I dont understand the concept of failure, because the term failure implies an end.
- Every great person I ever know had great weaknesses. Because the strength come with a
weakness. There are very different kinds of thinking.
- People in our society are reluctant to disagree, and thats a bad thing. The power comes frim
finding out from other people what you might be missing. Its not within you.
- Walter Isaacson, biographer of Jobs, Einstein and Benj. Franklin, said that they never listened to
anybody, they had to make sense of things themselves.

Ray Dalio 2015

https://soundcloud.com/economicprinciples
A DIFFERENT WAY OF SEEING ECONOMICS
- Economics is actually a very simple thing. All it is is a whole lot of transactions.
- For each product, service and financial asset, there is a total amount of spending paid with
either money or credit.
- The amount of spending divided by the total quantity sold is the price.
- So, I see it in a different way than traditional economics.
- In traditional economics, demand and supply are measured in units, and then there is a supply
and demand curve, and then through a calculation you find the spending.
- Looking at that I look at who are the individual buyers and what are their motivations.
- There is a not a market or a behaviour in aggregate that matters. People say the market doesnt
like this or let me bring back the confidence of the market. It lacks a specificity to it that is
misleading.
- Different participants in the market have different motivations.
- Ex: in a pension fund, knowing the behaviour of the investors, their reasons, you can look at a
buyer and the sellers and understand thats all that price is.
- There was a lot of debate around the printing of money being inflationary.
- If the money now being spent makes up for the credit not being spent, then spending remains
the same. It is spending that matters, not money.
- Looking at the european financial crisis for example, I realised certain entities needed to sell
bonds for various reasons. The purchases of them would not increase at the rate that would be
necessary to fund those, there was a funding gap that caused prices to decline.
The measure Money x velocity = price x quantity I think is problematic
- there is no such thing as velocity
- also, there can be transactions with no money involved, but just credit
- we cant really judge what the behaviour velocity will be, therefore trying to use this equation
doesnt take you very far
- Instead of using this equation, I prefer looking at price as
- The amount of spending divided by the total quantity sold
First equilibrium:
- Debt has to rise in line with the income necessary to service it. When it is not in line, it produces
a debt cycle.
Second equilibrium:
- The operating rate of the economy cannot be too high or too low in the usual business cycles
Third equilibrium:

- The projected returns of asset classes should be at a level that makes sense. If theyre out of
line with each other, ex cash having lower expected returns than bonds, having a lower
expected return than equities
continue at 30min

Oprah Winfrey aug2014

- Knowing what you dont want to do is the best place to be when you dont know what to do,
because it leads you to figure out what you wanna do.
Ive always done what felt right, followed my instinct.
Luck is preparation meeting the moment of opportunity.
Im usually the only female and the only black person in meetings and such things.. and I love it.
I looks like Im a host, Im in the movies and have a network, but the real reason why Im here is
to help connect people to themselves through ideas and stories. Raise consciousness.
- My mantra, my religion, is the 3rd law of physics: for every action there is a reaction. The
intension determines the reaction, the result. My show was intention based, purpose fuelled,
thats why it was n 1.
- I pay attention to my life. Life teaches you every day. Everything is trying to take you within.
- Align your personality with your purpose, and nobody can touch you. Then you wake up every
day and you are fired up.

Seth A Klarman, The Baupost Group - Ben Graham Centre Value Investing 2009
https://www.youtube.com/watch?v=NCEd9oOgHu8
- I worked for some time in Mutual Fund, and I learned more there than my 2 years in business
school. The important thing I learned was value investing
- Value investing: risk averse approach. Think first about risk than about returns
- Ben Graham is the intellectual father of value investing. He worked in the market in the 20s and
30s very much like Buffett after him. He looked for mispricing situations.
- Im not in favour of a pure mathematical approach to value investing.
- Some situations that look cheap arent that cheap: obsolete inventories, uncollectible
receivables, bad assets on the books, balance sheet liabilities like environmental problems or
litigation.
- So we have to 1) follow value principles and then 2) approve them through in depth
fundamental analysis
- Our approach is built upon 3 pillars:
- 1) Focus on risk before focusing on return (Graham)
- this is very different than Wall Street
- volatility isnt necessarily risk
- risk is the probability of losing and how much you can loose
- Wall street tends to simplify with single point estimates rather than a range of possible
outcomes. They just focus on how much you can make, and with weak precision.
- 2) The world is oriented in relative performance
- All the big mutual funds just care about competing against each other or against the
market, so they look at relative numbers: if the market is up 20 they wanna be up 21. Youre
happy with losses if you lose less than the others.
- They end up just tracking indexes.
- Reason is: everyone is an asset gatherer.
- Wealthy individuals are interested in absolute returns.
- 3) Be bottom-up and not top-down
- Most of the investment world is top-down:
- how is the economy gonna do?, how currencies/interest rates gonna do?
- You analyse investments bottom-up, one at a time
- George Soros was top-down
- he would have a view that for ex
- the pound was under or over valued or

- the fed was going to cut or raise rates

- That would lead you to specific areas of investing and specific companiess within them
- I think that it is incredibly difficult to do, I dont know anyone with a long record of success
with macro forecasting.

- you need to translate correctly into industries and companies

- and then be early, or the prices may have already moved from your viewpoint

- We did some things that we think made us successful:

- We wanted flexibility from our clients.
- allows us to manoeuvre in complicated and volatile markets
- the more weapons in your arsenal, the better the chances of taking advantage of
mispricing

- Put our own money alongside our clients

- Work very hard to identify an hedge
- something that
- it is legal and legitimate
- gives them a reason to think theyll outperform
- The biggest hedge one can have is a long term orientation
- a lot of funds feel an enormous pressure to hold cash or buy very short term
situations like bond maturing in 6 months

- There is much less competition for long term orientation

- Relationships
- We work hard to have the best brokers and give important clients to them
- Look at who youre buying from: is that person smarter than you? Does he know more
than you? Try to buy from people that are selling cheap because they dont know what
theyre doing.
- Opportunities of mispricing:
- bonds that are downgraded
- kicked out of an index
- corporate spin-offs
- fairly large company that has an unwanted division of some sort, has a vision, a major
liability, weak management
- CONTINUE AT 27m00

Stephen Mandel (Seth Klarman likes him)