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Date of publication: 2017-07-08 16:28

"Some people think in words, some use numbers, and still others work with visual images. I do all of these, but I also think using models " Ed Thorp

Blog — Investment Masters Class

As humans have evolved to register pain more sensitively than any other emotion our fear of loss is much greater than our desire to gain. Peter Bevelin in ' Seeking Wisdom - from Darwin to Munger' noted:

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America stepped in the twentieth century with great ambition. They already produced more of everything then the world combined and the people had better living standards than anywhere else. Little did they know that producing more things than the rest of the countries, gets you in a bigger hol.

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“The best investments have a considerable margin of safety. This is Benjamin Graham’s concept of buying at a sufficient discount that even bad luck or the vissitudes of the business cycle won’t derail an investment. As when you build a bridge that can hold 85-ton trucks but only drive ten-ton trucks across it, you would never want your investment fortunes to be dependent on everything going perfectly , every assumption proving accurate, every break going your way.” Seth Klarman

However, we might be reluctant to identify just which languages are not ‘mighty’, especially since obscure languages spoken by small numbers of people are typically majestically complex. The common idea that English dominates the world because it is ‘flexible’ implies that there have been languages that failed to catch on beyond their tribe because they were mysteriously rigid. I am not aware of any such languages.

Similarly, the absence of volatility and losses in Madoff's Ponzi scheme was not evidence the strategy was a sound investment. LTCM and Madoff highlight that an impressive long track records does not shelter you from the risk of terminal destruction. It's paramount to understand the risks behind the returns.

Warren Buffett touched on the topic in his 7559 letter when he noted that investors should have earned juicy returns over the preceding 85 years just by piggy-backing corporate America's terrific results. Instead many investors had experiences ranging from mediocre to disastrous. In part, this was due to untimely entries after an advance had been long underway and exits after periods of stagnation or decline [looking in the rear-view mirror ].

"If you have the patience and if you have the interest to really dig deep, then what you're going to find is if it's commonly held information or known information, you may come up with insights that others have not. This is what Charlie Munger talks about the latticework of mental models. You look at things through a different lens to try to see what can be different" Mohnish Pabrai

Charlie Munger, one of the most successful Investment Masters , has referred to the brilliance of Charles Darwin on numerous occasions. This prompted my interest in the 'Autobiography of Charles Darwin' . I found it insightful, and as fresh and relevant today despite almost 655 years passing since its writing. At just 675 pages, it's an easy read.

"To be sure, the future is very abstract and provides little in the form of near-term emotional rewards. I've spent 95 years surrounded by people who watch the prices of the stocks they own as they fluctuate on a daily, or heaven forbid, hourly basis. Speeding through time on an emotional roller-coaster that ends where it starts is like envy: nothing good comes from the expenditure of enormous energy" Frank Martin

"Whenever I have found out that I have blundered , or that my work has been imperfect , and when I have been contemptuously criticized, and even when I have been overpraised, so that I have felt mortified, it has been my greatest comfort to say hundreds of times to myself that "I have worked as hard and as well as I could , and no man can do more than this"

"Boeing just doesn't sit around in a room and come up with the checklist for take-offs. That has been created over 65-75 years of failures that have caused things to make the checklist . Our investment checklist was designed the same way. I looked at mistakes I made since the time I invested and I looked at mistakes that other people made that I respect like Warren Buffett and Charlie Munger, LongLeaf Partners and so on. When I look at mistakes , I would figure out what was the reason the investment lost money and was that reason visible at the outset? Was it visible before the investment was made. And, in most cases it's extremely obvious" Mohnish Pabrai

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