Power of compounding

Understanding both the power of compounding and the difficulty of getting it is the heart and soul of understanding a lot of things.

- Charles Munger

Quality of the business

When you mix raisins and turds, you still have turds.

- Charles Munger

Great business at a fair price

A great business at a fair price is superior to a fair business at a great price.

- Charles Munger

Change vessels instead of devoting energy on leaking boats

My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

- Warren Buffett

Secret of sound investment

Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety.

- Benjamin Graham

Inflation protection by tangible asssets - wrong

For years the traditional wisdom - long on tradition, short on wisdom - held that inflation protection was best provided by businesses laden with natural resources, plants and machinery, or other tangible assets. It doesn't work that way. Asset-heavy businesses generally earn low rates of return - rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses.

- Warren Buffett

What this implies is any asset heavy business (caution for the investors who follow the book value logic) carry higher risk to deliver returns to the shareholders than any business which is asset light but have intangible assets. An asset heavy business could be laden with assets like natural resources or plant & machinery or any other tangible assets. But over a longer period, the re-investment needs of these business would leave nothing for the shareholder and thus inflation adjusted returns from these business would not be worth to speak.

But business which own intangible assets of lasting value (e.g. Colgate brand has lasted more than century) coupled with minor tangible assets are hurt the least because of inflation. These business should have enduring franchisees which and the managements should have the focus to defend their moat and fortify it on a ongoing basis. Otherwise they would be a blip in the radar.

Don't buy what you don't understand

There are all kinds of businesses that Charlie (Munger) and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do.

- Warren Buffett