Warren Buffett: 10 Mistakes Every Investor Makes

Summary

The speaker criticizes conventional asset allocation strategies, advocating for investing in well-understood businesses rather than diversifying for the sake of it. He emphasizes the importance of understanding business economics and values, dismissing the concept of growth vs. value stocks as misleading. He also discusses the risks of gambling and the role of government in facilitating it.

Takeaways

• 💼 The speaker rejects the idea of holding cash as a percentage of assets, preferring to invest in 'decent businesses' rather than keeping a cash reserve.
• 📉 The speaker criticizes the common Wall Street asset allocation strategy of 60% stocks and 30% bonds as 'total nonsense'.
• 🤔 The speaker and Charlie do not have an opinion on the market, as they believe it's unpredictable and should not influence business decisions based on solid analysis.
• 🚫 The speaker believes that diversification is a strategy for the ignorant, and those who understand business should not need to own a large number of stocks.
• 📚 The speaker argues against the conventional wisdom taught in modern corporate finance courses, considering much of it to be 'twaddle'.
• 📉 The speaker points out that volatility is not a good measure of risk, using the example of farmland prices in the 1980s to illustrate the point.
• 💡 The speaker emphasizes the importance of understanding the business one is investing in, and that true risk comes from the nature of the business and lack of knowledge about it.
• 🧠 The speaker suggests that a stable personality and the ability to think independently are more important in investing than high IQ.
• 💪 The speaker recommends investing in oneself, particularly in communication skills, as it can significantly increase one's value.
• 🚫 The speaker finds the idea of constantly adjusting asset allocation ratios, like moving from 60/40 to 65/35, to be nonsensical.
• 🎰 The speaker compares gambling to investing, noting that the propensity for gambling is high and that it's often a tax on ignorance, criticizing governments for exploiting this.

Q & A

What is the speaker's opinion on holding cash?

The speaker believes that holding cash without investing it is not beneficial. They aim to have all their money working in decent businesses, but sometimes circumstances result in having more cash on hand than desired.

What does the speaker think about traditional asset allocation strategies?

The speaker dismisses traditional asset allocation strategies, such as having a fixed percentage in stocks and bonds, as nonsense. They believe in investing in good businesses rather than following rigid allocation models.

How do the speaker and their partner approach market predictions?

The speaker and their partner never have an opinion about the market because they believe it would not be beneficial and might interfere with their ability to make good decisions about specific businesses.

What is the speaker's view on diversification?

The speaker believes that diversification is often a protection against ignorance. If one understands and can analyze businesses well, it makes little sense to own many stocks. Instead, it is better to invest more in a few excellent businesses.

Why does the speaker think volatility is a poor measure of risk?

The speaker argues that volatility does not measure risk effectively. They believe risk comes from not understanding what you are doing and the inherent nature of certain businesses, not from the fluctuation of stock prices.

What lesson does the speaker draw from their experience with farmland investment?

The speaker learned that lower prices do not necessarily mean higher risk. For example, they bought farmland at a low price during a market crash, which turned out to be a less risky investment despite high volatility.

How does the speaker feel about the relationship between high IQ and good investment decisions?

The speaker believes that high IQ is not necessary for good investment decisions. Instead, having a stable temperament and the ability to think independently is more important.

What is the speaker's opinion on asset allocation adjustments made by strategists?

The speaker advises investing in oneself, particularly in communication skills, as it can significantly increase one's value. They emphasize that personal development is an asset that cannot be taken away.

How does the speaker differentiate between growth stocks and value stocks?

The speaker asserts that the distinction between growth stocks and value stocks is artificial. Both growth and value are part of the same investment equation, and the focus should be on the underlying economics of the business rather than arbitrary classifications.