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“When I was asked to talk about how to win, my response was that I couldn’t do that. What I could do, however, was to talk about how to lose and I offered a guarantee that anyone who followed my formula would be a highly successful loser.”
Charlie Munger likes to quote the German mathematician Carl Jacobi, who said “Invert, always invert”. At a 2008 event sponsored by Coca-Cola (KO) in Atlanta, Warren Buffett talked about this idea:
“You really want to reverse engineer your life. My partner Charlie Munger (who’s 84 and drinks a lot of Coke’s everyday too) says ‘all I want to know is where I’m going to die so that I’ll never go there’… If you engineer out of your life the habits of failure… what’s left is success; it’s not very complicated.”
This applies to what I have been talking about recently, particularly in my article entitled “Buying Stocks on Sale” - most of us aren’t looking to simply maximize our profits (despite what academia might think); in reality, we are looking for a risk-averse way to build our life savings at an attractive rate of return. For the great majority of people, an intelligent investment strategy that focused on buying great companies when they were attractively priced would generate returns that were more than satisfactory.
As such, I’m starting a list of “10 Commandments for Investment Failure”, which outlines some things individuals should do if they hope to drain their brokerage accounts dry; I hope that others will help me build this list by adding their own two cents in the comment section of this article:
10 Commandments for Investment Failure
1. Buy and sell in and out of stocks; the more frequently, the better.
2. Don’t bother reading annual reports; EPS is all that matters.
3. While you’re at it, don’t read about business or financial history at all; this is the “great moderation”, and the booms and busts of yesteryear are a thing of the past.
4. Spend the majority of your “research” time (if you feel the need to do research) watching CNBC.
5. Don’t limit yourself to one area of expertise; diversify into commodities trading, currencies trading, etc.
6. Rely on spreadsheets; whatever number the DCF model spits out must be true…
7. Live in a bubble; find what agrees with your thesis and avoid that which doesn’t
8. Look for the next big thing, especially in industries you know nothing about.
9. Avoid the advice of successful investors like Warren Buffett; everybody knows that “buy and hold” is dead anyways…
10. Use leverage; “2X” sounds a whole letter better than little old “X”
About the author:
I'm a value investor, with a focus on patience; I wait for great companies that are suffering from short term issues, and load up when those opportunities become present.
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