thatBerkshirehas acquired will return 13% pre-tax on what we paid for them, maybe more. With a cost of capital of 3% — generated via other peoples’ money in the form of float — that’s a hell of a business. That’s the reason.Berkshireshareholders needn’t totally despair.
Berkshireis not as good as it was in terms of percentage compounding [going forward], but it’s still a hell of a business.”
http://www.fool.com/news/foth/2001/foth010508.htm
Beta
“Beta and modern portfolio theory and the like – none of it makes any sense to me.” http://www.fool.com/news/commentary/2004/commentary040507wt.htm
Biology:
“Common stock investors can make money by predicting the outcomes of practice evolution. You can’t derive this by fundamental analysis — you must think biologically. http://www.fool.com/BoringPort/2000/boringport00051501.htm
“I find it quite useful to think of a free market economy—or partly free market economy—as sort of the equivalent of an ecosystem…. ” http://ycombinator.com/munger.html
Black-Scholes
“Black-Scholes is a know-nothing system. If you know nothing about value — only price — then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it’s crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane. “http://www.tilsonfunds.com/
”Black-Scholes works for short-term options, but if it’s a long-term option and you think you know something [about the underlying asset], it’s insane to use Black-Scholes.” http://www.tilsonfunds.com/
Boards of Directors:
“A board member should be perfectly willing to leave at any time and willing to make the tough calls.” http://seekingalpha.com/article/14333
“the institution of the board of directors of the major American company. Well, the top guy is sitting there, he’s an authority figure. He’s doing asinine things, you look around the board, nobody else is objecting, social proof, it’s okay? Reciprocation tendency, he’s raising the directors fees every year, he’s flying you around in the corporate airplane to look at interesting plants, or whatever in hell they do, and you go and you really get extreme dysfunction as a corrective decision-making body in the typical American board of directors. They only act, again the power of incentives, they only act when it gets so bad it starts making them look foolish, or threatening legal liability to them. That’s Munger’s rule. I mean there are occasional things that don’t follow Munger’s rule, but by and large the board of directors is a very ineffective corrector if the top guy is a little nuts, which, of course, frequently happens. ” http://www.loschmanagement.com/Berkshire%20Hathaway/Charlie%20munger/The%20Psychology%20of%20Human%20Misjudgement.htm
Brain:
“I think it is undeniably true that the human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models- ones that will do most work per unit.” LatticeWork, The new Investing quoting OID
“The basic neural network of the brain is there through broad genetic and cultural evolution. And it’s not Fermat/Pascal.It uses a very crude, shortcut ? type of approximation. It’s got elements of Fermat/Pascal in it. However, it’s not good. So you have to learn in a very usable way this very elementary math and use it routinely in life ? just the way if you want to become a golfer, you can’t use the natural swing that broad evolution gave you. You have to learn to have a certain grip and swing in a different way to realize your full potential as a golfer.” http://www.thinkfn.com/en/content/view/52/?id=
“Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or when it’s blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it. . .” ‘the Deep structure of the human mind requires that the way to full scope competency of virtually any kind is learn it all to fluency – like it or not.” Charlie’s Al
Brands:
“It’s hard to predict what will happen with two brands in a market. Sometimes they will behave in a gentlemanly way, and sometimes they’ll pound each other. I know of no way to predict whether they’ll compete moderately or to the death. If you could figure it out, you could make a lot of money.” http://www.tilsonfunds.com/wscmtg04notes.doc
Bridge:
“the right way to think is the way Zeckhauser plays bridge. It’s just that simple” http://www.ksgcitizen.org/home/index.cfm?event=displayArticlePrinterFriendly&uStory_id=a47cfb0b-8c7d-4f0e-9984-8ba20794da06
“And your brain doesn’t naturally know how to think the way Zeckhauser knows how to play bridge. “for example,” people do not react symmetrically to loss and gain. Well maybe a great bridge player like Zeckhauser does, but that’s a trained response. Ordinary people, subconsciously affected by their inborn tendencies… “
http://72.14.203.104/search?q=cache:3sSZnXLbvQEJ:www.loschmanagement.com/Berkshire%2520Hathaway/Charlie%2520munger/The%2520Psychology%2520of%2520Human%2520Misjudgement.htm+%22charlie+Munger%22+%22the+way+Zeckhauser+plays+bridge%22&hl=en&gl=us&ct=clnk&cd=1
Bubbles:
“[The Internet bubble circa 2000 is ] the most extreme in modern capitalism. In the 1930s, we had the worst depression in 600 years. Today is almost as extreme in the opposite way.” http://www.fool.com/boringport/2000/boringport000501.htm One of the first big bubbles, of course, was the huge and horrible South Sea Bubble in England. And the aftermath was interesting. Many of you probably don’t remember what happened after the South Sea Bubble, which caused an enormous financial contraction, and a lot of pain. They banned publicly traded stock in England for decades. http://www.originaldissent.com/forums/archive/index.php/t-14214.html
Bull Markets:
“Bull markets go to people’s heads. If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.”
Bureaucracy
“The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature. And the incentives are perverse. For example, if you worked for AT&T in my day, it was a great bureaucracy. Who in the hell was really thinking about the shareholder or anything else? And in a bureaucracy, you think the work is done when it goes out of your in-basket into somebody else’s in-basket. But, of course, it isn’t. It’s not done until AT&T delivers what it’s supposed to deliver. So you get big, fat, dumb, unmotivated bureaucracies…. The constant curse of scale is that it leads to big, dumb bureaucracy—which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn’t mean we don’t need governments—because we do. But it’s a terrible problem to get big bureaucracies to behave.” http://ycombinator.com/munger.html
“Sears had layers and layers of people it didn’t need. It was very
