Friday 9 September 2016

Charlie Munger on Thinking errors and Misjudgements

Charlie Munger developed his own system of psychology.  These have very powerful implications for investors.

Do we behave like ants?

The ant merely responds to stimuli (e.g. pheromone) with a few simple responses programmed into its nervous system by its genes.

Under complex circumstances, don’t we also find ourselves behaving counterproductively just like ants?

Aren’t the stock markets a perfect playground for this kind of behavior?


1.  Reward and Punishment Super-response Tendency

All creatures seek their own self-interest.

Our innate drive is to maximize pleasure while at the same time avoiding or reducing pain.

It is imperative to understand the role of incentives and disincentives in changing cognition and behavior.

The power of incentives can be used to produce desirable behavioural changes.

An incentive-caused bias can tempt people into immoral behaviour.

Human nature, bedeviled by incentive-caused bias, causes a lot of ghastly abuse.

It is important to understand the motives and incentives of people and organizations you are dealing and investing with.

Widespread incentive-caused bias requires that one should often distrust or take with a grain of salt, the advice of one’s professional advisor.

If you rip apart any system and look at its core design, you will find mainly two things: incentives and disincentives.

The success or failure of any economic system depends on how incentives and disincentives are designed.

The success of the free-market system as an economic system comes from its inherent reward-punishment mechanism.

Communism has failed due to the absence of exactly those incentives. 

The US financial crisis was an outcome of wrong incentives and absence of disincentives.  

The crisis was a failure of the entire system. 

 “Incentives were horribly skewed in the financial sector, with the workers reaping rich rewards for making money but being only lightly penalized for losses.”

It is quite clear that man responds more often and more easily to incentives than to reason and conscience. 


2.   Liking and Loving Tendency

Love is one of the most basic of emotions.

It extends not only towards people but also towards things, ideas and concepts.

This tendency to love has its own set of side effects.

Now ask yourself these questions:
·                     Do you tend to ignore their faults? Do you readily comply with their wishes?
·                     Do you favour people, products, and actions merely associated with them?
·                     Do you distort any unpleasant facts about them?

We dislike challenging and reasoning with things and ideas that we love.

Do fall in love, but not with your stocks.  

Love your capital and do the best you can to protect it and to help it grow. 

Be a disciplined value investor!


3.   Doubt-avoidance tendency

Doesn't our mind often display a tendency to steer clear of doubts to quickly reach a decision or conclusion?

But the problem with any kind of psychological tendency or mental programming is that it doesn't work well in all situations. 

A person who is neither under pressure nor threatened should ideally not be prompted to remove doubt through rushing to some decision.

Yet, more often than not we find ourselves doing exactly the opposite.

When a person comes to the stock markets with a bag full of money to invest, he is usually inclined to fall in love with any stock that seems promising. 

The boredom and pain that is usually part of a thorough scrutiny and analysis of a stock is often avoided.

Quick conclusions and quick decisions are often preferred instead of the burden of doubts and ambiguity. 

If you learn how to reign over the doubt-avoidance tendency while you conduct your business in the stock markets, there is little that can stop you from becoming a successful investor


4.  Inconsistency-avoidance tendency


While habits can be good, and good habits doubly so, there are several disadvantages as well. 

Habits often come in the way of any kind of change or transformation. 

As Charlie Munger puts it very aptly, "People tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong." 

The inconsistency-avoidance tendency is very rampant amongst human beings. In simple words, we filter away any piece of information which may be inconsistent to our ideas and beliefs.

Stock markets are largely driven by sentiment. So you must do your best to be as objective as you can and guard yourself from the lures of greed and fear. 

Getting back to inconsistency-avoidance tendency, can you remember instances when you have used this tendency to your own peril?

Have you lost money on your favourite stock that had once been an outperformer? 

The company's prospects may have changed, it may no longer be worth putting your money into, but you still couldn't let go of it. Why?

Because letting go of it would be inconsistent with your original beliefs about it.

So you did everything to console and convince yourself that nothing was wrong.

But your portfolio losses have a different story to say, don't they? 

How exactly do you get rid of this tendency?   You need to be very disciplined with your approach. 
·                     One great way is to play the devil's advocate. If you find a prospective company very compelling, first start with rejecting the hypothesis. In other words, try to gather facts and arguments that will prove that the stock is a bad investment. After all your analysis, if you arrive at the conclusion that the stock is still good, then it has passed the bar. 
·                     You can also take a good lesson from the court of law. Law courts have processes and procedures in place that tend to minimise hasty and biased decision-making, which can cost someone's life. 

As investors, you must learn not to be hasty. Adjourn your stock purchases till you're not clear in your mind. 

Always remember, stock markets will always keep swinging higher and lower. Investing opportunities will be there. 

If you can tackle with your inconsistency-avoidance tendency, money will consistently keep pouring into your bank accounts. 


5.   Envy and Jealousy Tendency

These emotions are so innate to human nature that it is almost impossible to get rid of them.

Given the crucial role that these emotions play in the human world, you could risk ignoring them at your own peril. 

It is often said that stock markets are driven by greed and fear.

But legendary investor and Charlie Munger's 'Siamese twin,' Warren Buffett, has an important interruption to make here. He very wisely points out, "It is not greed that drives the world, but envy."

While 'greed' refers to an excessive desire to possess something, 'envy' is a desire to possess what the other person is possessing. 

And more often than not, greed is fuelled by envy.

Everyone is here not just to make money, but to make more money than what the next person is making. 

Comparison and competition is intense, creating a perfect recipe for jealousy tendency.

The important point to take home is to not let such negative emotions affect your investment decisions. 

But isn't it a little too difficult to not feel bad if your friends and colleagues make a lot more money than you do? It is indeed difficult. 

So the best antidote in such a case is to avoid discussions that would trigger feelings of jealousy.

In fact, some of the best investors in the world keep extremely low profile and keep their discussions limited to stock ideas and business fundamentals. 

In the absence of such external disturbances, they are able to make more rational investment decisions. 



6.   Over-optimism tendency 

Charlie Munger opines that an excess of optimism is the normal human condition. 

And this tendency to be over-optimistic not only manifests when man is in pain, but also when he is doing well and there is no threat of pain whatsoever.

"What a man wishes, that also will he believe." 

Over-optimism tendency drives not just stock markets but the entire world of finance and economics. 

Why otherwise would we have booms and bubbles with such amazing regularity?

Why do people continue to flock to the financial markets despite the regular crises and busts that torment the markets?

In fact, all the malaise troubling the global economy today, from the debt crises in the developed economies to the high inflation and slowing growth in emerging economies, do have roots in excessive optimism. 

The problem is that when things are good, we expect them to get better and better in a linear fashion. 

And even when things are bad and getting worse, we often expect that the situation will turn good again sometime in the future. 

This tendency is so often displayed by company managements. 

·                     During good timesthey tend to get over-optimistic and take up massive debt-funded expansion plans by way of capacity additions or wasteful mergers and acquisitions. When the cycle turns and things turn sour, you see red ink all over their financial statements. 
·                     What is surprising is that even in bad times, a lot of companies are extremely shy to admit that things are not going too well. They tend to project and hope only what they wish to see and not what there is really. 

As investors, the best way to deal with this bias is to acknowledge that it exists in the first place. 

That is half solution done because most of the times we are not aware of our own biases. 

Then a very effective antidote to over-optimism is to challenge your views by asking yourself as many questions as possible. 

If your views cannot stand the attack of reason, you know which tendency is to be blamed. 


 7.  Social proof tendency

 What is social proof tendency? It is an automatic tendency to think and act the way people around you are thinking and acting. 

The social proof tendency works in both positive and negative situations.

Be it riots and terrorists. Or be it the massive support that came in for a certain good cause

This tendency most readily occurs in the presence of puzzlement or stress, or both. 

Charlie Munger points out one interesting aspect of the social proof tendency which very well explains why in certain societies, corruption is so deeply rooted. 

The "Serpico Syndrome" is named in the memory of Frank Serpico who once entered a highly corrupt New York police division. 

Unlike others, he resisted to be consumed by the contagion of corruption. And for that resistance, he was almost about to lose his life.

As it is evident, the evil of corruption continues to persist in our country because of this very Serpico Syndrome, which is created by the social proof tendency and the power of incentives

Akin to the other spheres of life, social proof tendency is present in overwhelming proportions in the world of business and finance.

It dominates how investors behave in stock markets, how company managements do business and so on.

Many of us may think of corporate leaders and managers as highly qualified, intelligent and experienced people who would be making rational business decisions.

A deadly force which Buffett calls the 'institutional imperative' often hinders rational decision making and at times, even destroys businesses. 

What does institutional imperative mean?  The Oracle of Omaha explains the institutional imperative as that need for managers to act and do like their peers no matter how irrational it may seem. 

A simpler term that comes to mind is peer pressure.

However surprising it may seem even CEOs are subject to this pressure which forces them to make stupid mistakes. 

'Everybody was doing that'. 

From his own mistakes, Buffett realised how important it was to not fall victim to this force. 

Have the management act as if they were the owners. What happens when managers start thinking like owners? They think very differently. They think twice if their own money is at stake. 

The tendency to fall prey to the social proof tendency is also seen among investors. 

Stock market booms, bubbles and eventual crashes clearly show how investors succumb to peer pressure and end up burning their fingers. 

What should investors do to avoid such mistakes? 

Buffett has a solution for this as well. He says, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." 

It may sound simple but it's indeed a very powerful way to guard yourself against the social proof tendency. 



8.  Contrast Misreaction Tendency

How do we really perceive things? 

For instance, how does our brain figure that an elephant is a big fat creature? Or, how do we know that a tortoise is very slow? 

The answer to both these questions is relative comparison. 

We perceive everything in relative terms. 

This mode of perception extends to all things in life, and very evidently in investments and stock markets. 

It influences how we think about economic news and information, corporate performance, stock prices, and so on. 

The reason why we tend to perceive things in relative terms is that it is impossible for the human nervous system to measure everything in absolute scientific units. 

So we use our senses to identify things by comparing them with other things. 

It is the relative contrast that gives things their specific characteristics.

What is contrast misreaction tendency?  Contrast misreaction causes people to make wrong judgments based on misleading contrasts between two or more things and situations.

Charlie Munger cites an interesting example where this tendency is often misused-
A person is shifting to another city and looking for a new house for his family. 

To get some quick help, he goes to a real estate broker.

First, the salesman takes him around and shows him some really terrible homes for insanely high prices.

Then, he takes the person to a merely bad house at a slightly lower price. Need we mention what happens next!

What exactly went amiss in this case? How did the home buyer fall into the saleman's psychological trap? 

Blame it on the contrast misreaction tendency. 

When the person was shown the last property, he compared the house and its price to the horrible ones he saw before.

Because of this comparison, he was ready to buy the not-so-good-house at a pretty high price. 

Do investors in the stock markets also make wrong investment decisions because of the contrast misreaction tendency? The answer is yes, very often.

The following instance will explain how investors enter this psychological trap.

“Expensive at 140, attractive at 300!”

Mr C  was an active investor.

He was suggested by a friend to buy shares of XYZ Ltd when the stock price was 90 per share.
Instead of buying immediately, he decided to wait for some time.

But in just a matter of few weeks the stock price mounted to 140 per share. That was a whopping rise of nearly 56%.

Obviously, Mr C was very distressed. He cursed himself for not buying when the stock was trading at 90.

But now, he couldn't get himself to invest in the stock. It's way too expensive, he thought.

In the meanwhile, the stock continued to rally. In just a few months, the stock price was hovering around 400.

Mr C had never felt so miserable. 

He had missed such a big opportunity. 

But then the stock price faced some selling pressure and corrected by about 25%. 

At 300, what do you think Mr C must have done?  He invested heavily into the stock. 

Why did he not buy the stock at 140? What forced him to buy the same stock at 300? 

The answer in both cases is contrast misreaction tendency.

140 seemed very expensive in contrast to 90, the price at which his friend had suggested.

However, 300 seemed cheaper relative to the high of 400 that the stock had witnessed.

A similar mistake also occurs with valuation multiples. 

For instance, if a stock has commanded a price to earnings (P/E) multiple of 50 times in the past, it doesn't mean that a P/E of 30 times is a lucrative buying opportunity. 

How can investors avoid such thinking errors? 

The principles of value investing are a perfect antidote for the contrast misreaction tendency

Never judge the value of a company based on its past stock price performance or P/E multiples. 

Look at the company's business fundamentals and its past financial track record. 

How are the future growth prospects? 

What are the risks and opportunities to the business? 

Do the company's managers behave like owners? 

Valuing the company based on such important parameters will help you avoid false comparisons.


9.  Availability-misweighing tendency

What appears more often and more prominently around us assumes a lot more importance than it may deserve.

On the other hand, issues that may not be discussed could be disregarded as trivial. 

What does it mean? 

Charlie Munger explains it very aptly quoting a song: "When I'm not near the girl I love, I love the girl I'm near."

The human mind has a tendency to focus on what's easily available. And in doing so, often tends to give undue importance to it.

On the other hand, the significance of things and events that are not easily accessible could be undermined.

Business fundamentals and earnings drive stock prices over the long term. 

However, on a day-to-day basis, it is the relentless flow of news and information that sends markets up and down. 

Owing to this intricate relationship with news, the stock market is one place that most easily falls prey to the availability-misweighing tendency.

Isn't it often observed that news items that are prominently projected in the media elicit substantial response from the stock markets?

In other words, the markets are ready to react to any information that is made available to them. 

This also means that important matters that are not covered by the news media may be ignored by the stock markets. 

The case of individual investors is also very similar. 

Stocks that are most widely talked about in the media often make an easy entry into the stock portfolio.

Many companies tend to use this tendency to prop up their share prices. 

Using their PR machinery, companies bombard the media with press releases, interviews and news reports about every trivial development and achievement, many of which may not have any major impact on earnings. 

But in the absence of other relevant information, investors often end up giving undue importance to such insignificant matters. 

Charlie Munger suggests that taking Darwin's approach could be an effective antidote for availability-misweighing tendency. 

What did Darwin do to eliminate biases? 

It is said that Darwin was a very strong proponent of objectivity. He was known for playing the devil's advocate to his own ideas and hypotheses. 

So much so that as soon as he would have an idea, he would try to gather evidence to disconfirm it.

In fact, he tended to be even more rigorous in his approach with ideas that were particularly compelling.

Let's try and apply this approach to investing in stock markets. 

Say for instance, there is a certain stock that your friend has strongly recommended you to consider buying.

Suddenly, the stock price goes up following a positive piece of news. What would be your reaction? 

Your friend is optimistic about the stock. The news is positive. The markets too have cheered the news. Isn't there enough reason to run and call your broker to buy the shares?

If you would have done that, you would have quite likely fallen prey to the availability-misweighing tendency. 

A wiser response would have been to do what Darwin always did: Challenge the merit of the idea. 

Look for potential risks and concerns that could adversely affect the company.

Arrive at your independent view only after thoroughly evaluating the potential of the stock. 

The ultimate investing decision should be based solely on your understanding and insight and not from borrowed optimism. 

In short, if you come across a stock that appears to be the market's darling with a lot of media attention on it, play the devil's advocate and consider all possible risks and concerns that can derail the investment.

If the idea still holds, it is certainly worth investing.

It is observed that a vital quality that is common amongst all great investors is discipline. 

It is this discipline that helps them overcome the various thinking errors and biases, availability-misweighing tendency being one of them. 

A practical way to ensure discipline and to avoid falling prey to this tendency is to prepare an investment check list and adhere to the process in a disciplined manner. 



10.  Use-it-or-lose-it tendency

 If you don't use a certain skill, you tend to lose it gradually.

The same holds true for the various mental and physical skills that we possess. 

What can one do to avoid such loss of useful skills? The only way to keep such skills alive is to use them regularly.

The importance of regular practice is especially very vital in skills of a very higher order.

Charlie Munger suggests using something that is a functional equivalent of the aircraft simulator employed in pilot training. 

While investing is not a rocket science, there is no reason to take it too casually.

Many people take investing as a side business which can be done without putting in too much time and effort.   And that is one of the biggest fallacies. 

Legendary investors such as Warren Buffett, Charlie Munger and Peter Lynch did not create great fortunes out of thin air.

They are known to be rigorous practitioners of their art. 

They all read extensively and spend a huge amount of their daily routine analysing companies.

In other words, by using their mental skills meticulously, they have become successful pilots of the investing world. 


11.  Senescence-misinfluence tendency

Senescence-misinfluence refers to the cognitive decay and mental limitations on account of biological aging.

The aging process may differ from person to person in terms of the time it commences and the pace at which it progresses. 

But, by and large, old people have difficulty acquiring new skills. 

As such, the probability of learning complex new skills is practically zilch. 

Though acquiring new skills may be challenging,the good news is that some people very well manage to retain old skills that they have practiced intensely over the years.

What does senescence-misinfluence tendency have to do with investing?

Our financial needs change with the various phases of our life. 

Given that the topic under discussion concerns old age, let us focus on a person's financial needs post retirement. 

At this age, you may not have the burden of educating and marrying your kids.

You may also not have to worry about buying a home.

With all major investments and expenses behind you, you may be relatively relieved.

But you may have several other expenses. 

For instance, your healthcare expenses could be significantly higher.

You may also want to fulfil all the dreams that you may have sacrificed in your youth.  And so on. 

The point is that you are going to need a good deal of money irrespective of your age.
  
But would your pension income be enough to take care of your post-retirement needs? 

And wouldn't you want to avoid depending on your kids for money? 

At an age when you may not be in the best physical frame to travel distances and perform demanding tasks, what could you do for an alternative source of income? 

The answer is investing

Some may counter with the usual argument that investing in stocks is risky. 

Of course, there is no denying that there is an inherent risk. 

But the real risk of significant losses lies in speculative short-term trading.

If you choose the path of long term value investing, you will not only live with minimal risk, but the chances of immense profits will be significantly high.

Remember, in the long run, equities tend to outperform all major asset classes

But it would be a big mistake if you wait until retirement to start investing actively. The preparation has to start much earlier. 

When you are relatively young, invest time regularly to educate yourself about value investing.
Let this be a life-long process of learning and investing. 

In this way, you will be very well-equipped to deal with your investments in your latter years.

But wouldn't old age hinder your thinking abilities and decision making? 

Your greatest inspirations could be Warren Buffett (82 years) and his so-called Siamese twin Charlie Munger (89 years). 

What is the secret behind their outstanding thinking prowess and investing acumen even at this age? The answer is simple.

If you develop useful skills early in your life and practice them rigorously over the years, you could manage to retain those skills for a much longer period, despite the aging process. 




12.  Authority-misinfluence tendency

Why? Simply because it came from an authority! 

Errors owing to the misinfluence of authority are found across all spheres of human life. 

In some cases, the results tend to be very tragic.

A classic case that shows the powerful influence of an authority figure is the Holocaust. What else do you think could have motivated Nazis to ruthlessly slaughter millions of innocent Jews?

Why is man innately wired to follow authority?

What causes man to submissively bow down to authority even if it may seem wrong and unreasonable? 

The answer probably lies in the way we have evolved over the ages. All our ancestors lived in dominance hierarchies. 

Dominance hierarchy is a social living group with a ranking system based on power. 

Owing to competition over limited resources and mating opportunities, relative  relationships are developed between members of the same gender. 

This results in the creation of a social order. 

The social order undergoes changes only when a dominant animal is overpowered by a subordinate one.

Human societies have followed a similar path. 

History has been largely shaped by few men at the helm, while the majority of humanity has simply followed orders. 

This explains why following authority is a very automatic tendency of man. 

Following authority is not a flaw in itself. In several cases, it is quite crucial. 

For instance, think about the fate of a military operation where each member refuses to take orders without questioning. 

On the other hand, follow-the-leader tendency can be very dangerous at times as the examples above suggest.

Authority-Misinfluence tendency in stock markets

Uncertainty and risk have a big influence on how independently people take their decisions.
The greater the risk and uncertainty, the greater is the tendency to seek guidance and conformation from an authority figure. 
This makes the stock market a place that is incurably afflicted by the authority-misinfluence tendency.

Just spare a moment and ponder about how exactly you decide when to buy or sell a stock. 
Do you invest based on 'hot tips' shared by 'influential' friends?
Do you avidly track the portfolio of successful investors/ fund managers and try to mimic them?
Do you invest based on the advice given by stock experts who appear on television?
Do you blindly follow the advice of your broker or any other advisor?

If your answer is a 'yes' to any one of these, then here are some more questions. 
What makes you follow these experts? 
Do you ever question or challenge their opinions?
Do you trust them simply because they are in a position of authority?
Is it convenient for you to follow them blindly so that you can escape the blame in case things go wrong? 
If you honestly reflect over these questions you will see that your decisions are seldom your own.
In fact, it is not just small investors who fall prey to the wrong influence of authority.  Even experts do, a lot of times.

Listening to views and opinions from experts is quite valuable.
But there is difference between listening to experts with discretion and blindly following them. 
It is important that you exercise your own independent judgment to the opinions of others.


'Mr Market' is there to serve you, not to guide you


In an abstract sense, 'Mr Market' (as referred to the stock market by value investing genius Benjamin Graham) is a representation of an authority figure.
People pay excessive attention to where the markets are going.
But you must remember that 'Mr Market' is a fickle leader and often deviates away from the rational path.

The greatest investors in the world are those who do not give in to the moods of 'Mr Market'.
In fact, in his Letter to Shareholders in 1987, legendary investor Warren Buffett put down some very important lessons that he had learned from his Columbia Business School professor. 
Ben Graham had taught him to look at the market quotations as if they were coming from an emotionally troubled fellow called 'Mr Market'. 
The poor guy often goes through periods of euphoria followed by periods of gloom.
But the good thing is that 'Mr Market' does not mind if you ignore him.
His only job is to come up with a new quote every day, every few seconds.

So if you learn to command this peculiar gentleman, you can take advantage when he is gloomy and rack up great businesses at depressed prices. 
On the other hand, when 'Mr Market' is euphoric, you can simply ignore him. 
The most important thing to remember is to let the 'Mr Market' serve you, not to influence your investing decisions. 

13.  Twaddle tendency

All creatures survive in groups and the one factor that connects creatures of a species is communication.
One of the things that differentiate human beings from other animals is our ability to think. 
The relatively larger size of our cerebral cortex is the reason for our creativity, language and logical deduction.
As such, we have a highly advanced and complex language at our disposal.

But do we always make the most rational and productive use of words? The answer seems to be no.
And this is where the 'twaddle tendency' fits in. An online dictionary defines 'twaddle' as silly, trivial or pretentious talk or writing. 
Being a social animal, man often indulges in petty small talks and chatter. 
Twaddle or nonsense talks are not such a bad thing by themselves.
They only become a nuisance when they come in the way of some serious work that is in progress.  And this is what we need to keep a check on. 
Charlie Munger relates an interesting experiment on honeybees which can be used as an analogy to show how the twaddle tendency can lead to unproductive results.
After returning to the honey comb with pollen or nectar, the worker bee performs a dance with particular movements. 
The other worker bees then follow the directions suggested and set out to gather pollen and nectar.

A certain scientist was curious to know how the honeybees would respond if the nectar was placed in an unusual position.
So he placed the nectar in a straight-up position at a significant height.
As you would have guessed, no nectar exists in such a position in a natural setting.
So, this baffles the honeybee. It does not have a genetic program that is capable of communicating this new position. 

According to you, what should the honeybee ideally do in such a situation? 
It should just go back to the hive and pick a quiet corner, shouldn't it?   But the honeybee does not do that.
Instead, it comes back and attempts a dance.

But the dance turns out to be incoherent. Just like twaddle! 

Can this behavioural tendency of the honeybee also apply to human beings? 






Summary:

Do we behave to enviromental stimuli like ants?

1.  Reward and Punishment Super-response Tendency (Incentive and disincentive-caused bias)

2.  Liking and Loving Tendency (Fall in love and protect your capital, not with your stocks)

3. Doubt-avoidance Tendency (Quick conclusions and quick decisions are often preferred instead of the burden of doubts and ambiguity.  When neither under pressure nor threatened, a person should ideally not be prompted to remove doubt through rushing to some decision.)

4.  Inconsistency-avoidance Tendency (We tend to filter away any piece of information which may be inconsistent to our ideas and beliefs.  Be disciplined with your approach:  play the devil's advocate or have processes and procedures in place that tend to minimize hasty and biased decision making.  Adjourn your stock purchases till you are sure.  Stock markets will always keep swinging higher and lower.)

5.  Envy and Jealousy Tendency  (Greed is fuelled by envy.  Avoid discussions that would trigger feelings of jealousy.  Keep extremely low profile and keep discussions to stock ideas and business fundamentals.)

6.  Over-optimism tendency  (Excess of optimism is the normal human condition.  "What a man wishes, that also will he believe."  The best way is to acknowledge that this bias exists in the first place.  Challenge your views by asking yourself as many questions as possible to see if your views can stand the attack of reason.)

7.  Social proof tendency ( It is an automatic tendency to think and act the way people around you are thinking and acting.  The evil of corruption continues to persist because of the Serpico Syndrome, which is created by the social proof tendency and the power of incentives.  It dominates how investors behave in stock markets, how company managemetns (institutional imperative) do business and so on.  Have the management act as if they were the owners.  Buffett says, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.)

8.  Contrast Misreaction Tendency  (We perceive everything in relative terms.  It influences how we think about economic news and information, corporate performance, stock prices and so on.  Contrast misreaction cause people to make wrong judgements based on misleading contrasts between two or more things and situations.  For example, a person shifting to another city and looking for a new house and his estate agent using this trick on him.  For the investor, why he did not buy the stock at 140 (because it rose from 90) and then he bought the same stock at 300 (because it fell from 450)?  A stock with P/E of 50 in past and is now at P/E of 30 does not mean it is a lucrative buying opportunity.  Look at the company's business fundamentals and its past financial track record.  Valuing the company based on such important parameters will help you avoid false comparisons.)

9.  Availability-misweighing Tendency  (Due to the relentless flow of news and information, the human mind has a tendency to focus on what's easily available.  In doing so, often tend to give undue importance to it.  In the absence of relevant information, investors often end up giving undue importance to such insignificant matters.  Adopt Charles Darwin's approach.  He would try to gather evidence to disconfirm it.  Challenge the merit of the idea.  Look for potential risks and concerns that could adversely affect the company.  The ultimate investing decision should be based solely on your understanding and insght and not from borrowed optimism.  Be discipline.  To avoid falling prey to this tendency is to prepare an investment check list and adhere to the process in a disciplined manner.)


10.  Use-it-or-lose-it Tendency  (The importance of regular practice is especially very vital in skills of a very higher order.  Many people take investing as a side business which can be done without putting in too much time and effort.  And that is one of the biggest fallacies.  Legendary investors such as Warren Buffett, Charlie Munger and Peter Lynch did not create great fortunes out of thin air. They are known to be rigorous practitioners of their art.  They all read extensively and spend a huge amount of their daily routine analysing companies.  By using their mental skills meticulously, they have become successful pilots of the investing world.)

11.  Senescence-misinfluence Tendency  (At an age when you may not be in the best physical frame to travel distances and perform demanding tasks, what could you do for an alternative source of income?  The answer is investing.  The real risk of significant losses lies in speculative short-term trading.  If you choose the path of long term value investing, you will not only live with minimal risk, but the chances of immense profits will be significantly high.  Remember, in the long run, equities tend to outperform all major asset classes.  If you develop useful skills early in your life and practice them rigorously over the years, you could manage to retain those skills for a much longer period, despite the aging process.)

12.  Authority-misinfluence Tendency  (Uncertainty and risk have a big influence on how independently people take their decisions.  This makes the stock market a place that is incurably afflicted by the authority-misinfluence tendency.  Just spare a moment and ponder about how exactly you decide when to buy or sell a stock.  What makes you follow these experts?  It is important that you exercise your own independent judgement to the opinions of others.  "Mr. Market is there to serve you, not to guide you."  The greatest investors in the world are those who do not give in to the moods of Mr. Market.  (Mr. Market is a parable told and popularised by Benjamin Graham, teacher of Warren Buffett.)


13.  Twaddle Tendency  (Man often indulges in petty small talks and chatter.  They only become a nuisance when they come in the way of some serious work that is in progress.  This twaddle tendency, like the twaddle dance of the honey bees, can lead to unproductive results.  And this is what we need to keep a check on.   Better to stay in a quiet corner meantime.)

Wednesday 7 September 2016

Letter from the CEO of Alibaba

Dear Fellow Shareholder,
It has been a year full of excitement — and a few challenges — for the Alibaba Group. It is a privilege to serve as this company’s CEO, and on behalf of the entire Alibaba family, I want to thank you for your support as we move along our journey as a public company. I am writing today to share some thoughts on our progress over the past year and what we have in store in the years ahead.

OUR ECOSYSTEM IS THRIVING

Last September, we made history with the world’s largest IPO, an accomplishment made possible by the countless small and medium enterprises and consumers who are the backbone of the Alibaba ecosystem.
More importantly, over the past year the Alibaba ecosystem has grown stronger each day. We have 3501 million annual active buyers on our China retail marketplaces, tens of millions of small- and medium-sized businesses operating on our marketplaces and have achieved total effective GMV of RMB2.44 trillion for fiscal 2015. We have made great progress on mobile with more than 289 million mobile monthly active users.2 Our annual mobile GMV was approximately RMB1 trillion, and we have become the world’s first truly great mobile Internet company. Moreover, Alimama is playing an increasingly important role in user acquisition and monetization on our marketplace.
Six years ago, we began investing in a cloud-computing platform, which began to bear fruit last year. Over one million enterprises are currently using our services, and we are working with several Chinese municipalities to create cloud-based smart cities.
Cainiao Logistics, in which we invested, not only has proven successful in fulfilling the logistics needs of our transactional marketplaces, but also has clearly laid out a long-term strategy that is under execution. It is building up both the physical infrastructure and the data network necessary to solve for the immediate as well as future challenges in logistics.
We also added new capabilities to our ecosystem, including UCWeb (the number-one third-party mobile browser in China, and the most popular mobile browser in India and Indonesia) and AutoNavi (one of China’s largest providers of mobile mapping services), along with a series of important investments to serve and strengthen our ecosystem. We believe health and entertainment will be increasingly bigger opportunities in the future, so we expanded and invested in AliHealth and AliPictures.
The global markets have seen a lot of turmoil recently, and some of the volatility has impacted Alibaba Group’s stock price. I would like to take this opportunity to share our views: Alibaba’s values are reflected in the pursuit of our dreams and creating value for our customers. This value proposition is not affected by the stock price. We remain committed as ever in our focus to provide the best service to our customers. Only by better serving our customers and continually creating new value for them can we reciprocate the trust and support that they and wider society bestowed upon us, while successfully creating value for our shareholders and ourselves.
We are proud to share that Alibaba today is healthier, stronger and more confident than ever before. We have strong faith in the Chinese economy and the future growth of our business.

PERSISTENCE IN THE FACE OF CHALLENGES AHEAD

There is no denying that we have encountered many challenges during the course of our development. It was also inevitable that the market wouldn’t always fully understand us. However, we view all these challenges as invaluable opportunities.
1. MARKET LEADERSHIP EXPANSION
Alibaba will continue to focus on value creation for our customers to further expand our market leadership. How are we going to do that?
First, our unique market position and business model ensures our continued development and ability to add value. We are operating an ecosystem that is the catalyst for a transformation of the business landscape, and our hope is to provide the basic infrastructure for the future of commerce. We are dedicated to enabling others, ensuring opportunity for all ecosystem participants to flourish together. We can only achieve sustainable growth if all active ecosystem participants are growing and share collective interests.
Second, we plan for the future and long-term development. We will further invest in third- and fourth-tier cities and rural districts in the coming years in addition to fortifying our market leadership in major cities. We believe that building a truly viable network connecting people and products all across China is essential to realizing its full economic potential.
Third, we are committed to a profit model that is scalable with high efficiency. Any company that is not profitable or cannot scale profitably will find it difficult to sustain growth and provide long-term value to customers no matter the size of its business.
2. TRUST AND SAFETY OF OUR MARKETPLACE
We continue to improve our marketplace mechanisms and are committed to addressing some of the realities of operating a global e-commerce marketplace, which affect all companies in our space. This includes taking on the tough challenge of counterfeit products and brushing. We have confidence that Alibaba Group is the most qualified company to come up with effective solutions, leveraging the valuable experience and data accumulated over the years along with the hundreds of millions of dollars invested in the fight against counterfeiting and to enhance consumer protections. We have also announced several new partnerships with global anti-counterfeit organizations and continue to see significant progress. In this environment of intense competition, we will continue to upgrade our products; adapt to market changes; meet the needs of consumers and businesses; and further upgrade the governance and health of our marketplace platforms.
3. INVESTMENTS
Our investments are integral to the strategic development of Alibaba Group. All our investments are implemented in strict adherence to our strategic vision. While acquisitions contributing to annual and quarterly results are easily understood, we cannot make acquisitions and investments for short-term growth. We have strict procedures and controls throughout our entire investment process, from pre-investment analysis to post-investment oversight. We will also publicly report on the progress of our various investments in due time.

OUR FUTURE AND OUR CORE STRATEGY

Alibaba holds fast to our mission to “make it easy to do business anywhere.” This is our core principle, which has served us well over the past 16 years without losing steam. It will continue to be our guide. Alibaba Group is not just about being a profitable company. We want to work hard to bring about incremental change, to improve efficiency and solve the problems of society, and to catalyze social change.
But we will seek to bring new meaning to our mission. We are also well aware that in today’s era of rapid change, no industry is isolated from challenges and transformations. The integration of the physical economy and the digital economy is already a reality. We must ensure our efforts to make it easy to do business anywhere remain relevant in this new era in order to continue to create value for customers, help businesses grow, bring new users into the economy, transform supply chains, reconceive the production of goods and services, and ultimately enhance the efficiency of society and solve social problems.
We have set ambitious goals for ourselves. Over the next five years, Alibaba Group aims to become the world’s first platform to surpass US$1 trillion in GMV. Over the next 10 years, Alibaba Group will establish an ecosystem that serves two billion consumers, supports 10 million businesses and creates 100 million job opportunities. This ecosystem will allow SMEs around the world to fully participate in fair, free, open and equitable commercial trade.
We will get there by concentrating on three key priorities: globalization; rural expansion; and big data and cloud computing.
In the future, Alibaba wants to help consumers and businesses buy and sell globally. In past years we undertook a great deal of planning and exploration, and 2015 is the inaugural year of Alibaba’s globalization. We are aggressively developing cross-border e-commerce, bringing high-quality Chinese goods to overseas consumers while helping international companies introduce their products to the Chinese market. Our success depends in large part on our people. We are recruiting the best talent from around the world to support our globalization strategy.
Serving rural China will continue to be a priority. Almost half of China’s population lives in rural areas,3 and consumer activity is currently constrained by geographic limitations. Meanwhile, there is good farmland in rural areas that remains underutilized due to geography and lack of proper infrastructure. Through the power of the Internet, we believe rural consumers can enjoy the same selection of goods, services and prices available to their urban counterparts. At the same time, there is tremendous demand for high-quality, fresh agricultural products all over China that can be fulfilled by rural communities through e-commerce. We believe online marketplaces will gradually change the rural economy and foster positive rural economic development.
During the agrarian era, power came from wind and water. In the industrial age, the energy source was oil. The energy source of the new economy will be big data and cloud computing will be the engine. Data is the fuel for our future. Our cloud-computing capabilities will serve customers in China and around the world, moving them from today’s IT age, where information is harnessed for personal benefit, to the DT (data technology) era, where data is a shared resource for the benefit of society.

INNOVATION AND CONTINUOUS UPGRADING OF OUR ECOSYSTEM

We will continue to innovate and upgrade Alibaba's ecosystem. This includes the development of our five key platforms: e-commerce, logistics, cloud computing, digital marketing and mobile Internet services.
We will continue to upgrade Alibaba’s core business of e-commerce. No matter if it is in wholesale or retail, cross-border or rural expansion, products or services, we want to make the ecosystem more vibrant, influential and prosperous. We will take into consideration a variety of factors in addition to scale of business in determining platform upgrades, including marketplace mechanisms, health of the ecosystem and level of vibrancy. We plan to expand the category of services offered, building on the existing rich and diverse range of physical product categories and services to meet the multidimensional needs of consumer lifestyles.
On logistics, we continue to believe that an open and collaborative approach with partners is crucial to our goal of shipping goods anywhere in the world. Cainiao Logistics is exploring ways to help logistics partners all over China improve efficiency by integrating information from each parcel and every warehouse through social collaboration methods, big data and cloud computing.
Cloud computing has started to take off after six years of steady investment. We have comprehensive plans for a rich product selection and diversity in customer base. Today our cloud computing business is enjoying accelerated and robust growth in a market with tremendous potential, quickly becoming an important basic infrastructure in China’s future business landscape.
We are also in the process of transforming Alimama. Currently, Alimama works as a tool to help merchants on Taobao and Tmall better reach their consumers. Alimama will leverage our big data to become a standalone digital marketing platform for businesses to run marketing campaigns both inside and outside our owned and operated properties. Our hope is that Alimama will serve customers across all industries and sectors in a few years’ time, spanning physical products to entertainment and offering everything from marketing to local services.
We are also expanding our products and services into mobile service technologies. In addition to mobile Taobao and mobile Tmall, we own non-e-commerce-related web services built on UCWeb and Auto Navi. Web browsing, searching and geo-mapping capabilities are fundamental to the mobile era, and help to integrate our businesses more seamlessly and create endless possibilities for our development of mobile technologies.

FOSTERING TALENT OF THE NEXT GENERATIONS

We believe in the power of youth to keep Alibaba vibrant and ensure our future continuity. Therefore, at the beginning of May this year, in addition to my taking on the role of CEO, we appointed several younger executives to front-line decision-making roles. Over the years we have made significant investments in talent development succession planning so that at every stage of our development, we will have a strong team of young leaders to rise to the occasion. Today, our executive team is composed of people born in the ’70s, and more than half of Alibaba’s managers were born in the ’80s.
In our rapidly changing operating environment, we know the innovation and creativity of our people is our greatest asset. We will continue to challenge, reward and develop our talent to ensure our sustained growth and success.
Alibaba is a company driven by its vision, and our development is guided by strong company culture and values. We have always been idealistic yet realistic. As the leader of a new generation of management, I assure you we will continue to strengthen the Alibaba ecosystem, enabling the success of more people and creating more value for our customers and partners, the community and our shareholders. Thank you again for your investment in Alibaba.

DANIEL ZHANG

Chief Executive Officer, Alibaba Group


Footnotes



http://ar.alibabagroup.com/2015/letter2.html


http://ar.alibabagroup.com/2015/index.html

Alibaba - Jack Ma's first letter after the IPO of Alibaba.

Dear Alibaba Group Shareholders,
I would like to take this opportunity, on behalf of everyone at Alibaba Group, to express my deepest appreciation to our customers, employees, investors and partners who have believed in us and supported us over the past year as we embarked on our journey as a public company.

It has been a volatile time for global markets, and we have watched these developments closely. We have a clear vision of where Alibaba is and where it’s headed. Over the past year we have become healthier, stronger and more confident and have made great progress in our strategic development.
What I said on the occasion of our IPO last year when we raised US$25 billion bears repeating. What we earned was not money, but trust. Maintaining that trust means we must listen carefully to the views of others. It also means we must reflect on the challenges we have when communicating with our shareholders and the public. The majority of our products and services are not accessible outside China, which makes it difficult for our overseas shareholders and stakeholders to fully understand the company and what it is like to be an Alibaba customer. As a result, many are trying to understand us through the lens of an outsider and may not have a full or accurate understanding of who we are and what we do.
So, I would like to share some of our thoughts about Alibaba Group here with you:

I. ALIBABA GROUP’S STRATEGY IS TO BUILD THE INFRASTRUCTURE OF COMMERCE FOR THE FUTURE. E‑COMMERCE IS ONLY THE FIRST STEP.

Many people confuse us with other e‑commerce retailers and therefore assess our business model solely on the basis of the growth rate of our gross merchandise volume (GMV). In fact, this narrow definition of e‑commerce is only a fraction of the Alibaba Group strategy. What we are building is an open, transparent and collaborative infrastructure for commerce.
At the end of June 2015, Alibaba Group has 34,000 employees, and fewer than 10,000 of those employees are directly involved in our China retail marketplaces and related GMV. Our platform model is highly efficient as we generate close to RMB3 trillion GMV at an average of nearly RMB300 million per person. We continue to improve our technology and products in order to win market share through innovation and technology — we never rely on the strategy of simply increasing headcount. In the coming years, we will have the opportunity and capability to build the most efficient business organization among the large global companies while creating the most job opportunities through our ecosystem.
Setting aside the employees working on our China retail marketplaces, our B2B business and backroom operations teams, close to half of Alibaba’s workforce is focused on building businesses that have long-term strategic importance. We firmly believe that only by investing in the future and adhering firmly to our long-term strategy will Alibaba have a true future.
It is only through Internet technology and big data that we can establish a truly meaningful innovative infrastructure for commerce that will provide comprehensive support to small and medium-sized enterprises. The less developed business infrastructure in China provides Alibaba a unique opportunity to create the infrastructure of China’s future commerce, not just the infrastructure of e‑commerce. Around half of Alibaba Group’s workforce and our affiliated companies, including Ant Financial and Cainiao, are working on important areas of our ecosystem, including logistics, Internet finance, big data, cloud computing, mobile Internet, advertising and the so-called double H industries — Health and Happiness (the big data-based healthcare and digital entertainment businesses which will take 10 years to become data-driven).
Today, Cainiao, our logistics affiliate, helps handle around 10 billion packages every year; our affiliated Internet financial arm serves more than 400 million active users; our cloud computing business, which is maintaining an annual growth rate of over 100%, is taking a leading role in the world; and our mobile-based products, including search, map and browsers, are providing vital infrastructure services to Chinese users. In the future, we will continue to provide a broad spectrum of services to tens of millions of Chinese companies, spanning e‑commerce, financial services, logistics, cloud computing and big data, marketing, and cross-border trading services.
Our strategy is long-term, so although the above new platforms we are building are still in progress and have yet to yield substantial revenue, their prospects are exciting and we are making headway.
We firmly believe the era of heavy business conglomerates is gone. The economy of today and tomorrow will rely on a platform and ecosystem approach. Sustainable growth can only be achieved when enterprises operate within an ecosystem, participate in collective development and share common interests.
Today, some of our strategic businesses are yielding initial results. Take logistics as an example. In fiscal year 2015, Alibaba generated more than 24 million packages on a daily basis handled by the more than one million delivery personnel employed by our logistics partners. We expect that in 10 years, the number of delivery personnel in China will exceed 10 million. This growth will be driven by social forces rather than by any single company. We also believe that over the next three years, Cainiao’s unique services will bring significant changes to the logistics sector and users will be able to enjoy enhanced and standardized services. Logistics will become a standard offering of e‑commerce companies rather than a core competence. Therefore, Cainiao’s mission is to enable delivery firms to provide standardized and formalized services.

II. CHINA’S ECONOMIC DEVELOPMENT AND ITS RELATIONSHIP WITH ALIBABA GROUP

Recently, signals of China’s economic slowdown have triggered widespread concern and, I believe, overreaction around the world. This reaction illustrates how China’s economy has been fully integrated into the world economy with a considerable degree of influence. However, we believe an economy that continues to experience such rapid growth is neither realistic nor sustainable and China shouldn’t aim for such growth.
For example, the cost of high-speed economic growth has been the destruction of ecological resources. After many government vows to upgrade the economy, the financial crisis in 2008, fatigue in investment and exports and unrealistic expectations of ever-faster growth, China’s economy has reached a point where it must upgrade and update. The current GDP growth pattern is not sustainable. In fact, if China continues to pursue the high growth rates of the past, then China will pay a high price.
I firmly believe that for the future, the advantages of a slowdown in China’s economic prospects far outweigh the disadvantages. China’s economic development is no longer in need of increasing its numbers, but of increasing its quality. China is the world’s second-largest economy, and even with a GDP growth rate of 5%, the growth rate is more than double that of developed economies.
In the past 30 years, the Chinese economy has benefited from the liberalization of thinking and a more open economic policy. However, we have not focused on fostering the creativity and innovation of people, which is the most important factor in stimulating productivity. High GDP growth relies on the capacity of manufacturing, while the improvement in quality of life relies on innovation. I believe there is much more we can do in this regard.
China’s economy is transitioning from an export sales-driven economy to a domestic-consumption economy, and from investing in infrastructure to operating infrastructure. China will use advanced technology and a new market-driven approach to solve the issue of sustainable development. All in all, China’s economy has immense potential. It will not be easy, but China’s future “economic miracle” will lie in its ability to boost productivity and its use of big data and Internet technology to stimulate domestic consumption and generate exponential development opportunities.
Will the economic slowdown have any impact on Alibaba?
At the end of March 2015, the GMV of Alibaba’s China retail marketplaces had already reached RMB2.44 trillion, accounting for 9% of China’s retail consumption. We predict that over 50% of China’s consumption will be conducted online within 10 years, and that means massive potential for the e‑commerce market. On this basis, more than 80% of China’s enterprises will need to use an Internet-based e‑commerce platform, logistics network, financial services, cloud computing and cross-border services. Alibaba’s investments today will make this possible. Our business is no doubt closely related to the Chinese economy, and we believe the services Alibaba Group will provide in the future will be the fourth indispensable resource for enterprises, after water, electricity and land.
I do not agree with the notion that consumption will decline as economic growth slows. It is inaccurate to think that the slowdown of the Chinese economy means that Chinese people are unwilling to spend. The Chinese lifestyle philosophy is different from that of the West. Consumers in developed Western economies are good at spending the money they believe they will earn in the future. To the contrary, Chinese people are constantly saving for the future. The saving rates in China are some of the highest in the world. During economic downturns, Western consumers may have trouble borrowing to maintain their lifestyles, but their Chinese counterparts have savings for retirement or for times of crisis. Therefore, slower economic growth does not mean declining purchasing power. With the convenience and value-for-money merchandise offered by e‑commerce, consumers are becoming more and more willing to shop online.
China’s middle-class population is close to 300 million and in 10 years, that number is going to reach 500 million. Yet the level of consumption among the middle class is still well below their income level. Bearing in mind that consumption is triggered by innovation, it follows that Alibaba’s business model will be a strong driver of domestic consumption in China going forward. This is clearly illustrated by the consumption volume of Alibaba’s 11.11 Global Shopping Festival. China does not lack domestic consumption power. Being thoughtful about how to ignite that power is the key. Whether it is about facilitating imports, driving domestic demand in tier 3 and 4 cities or unleashing the purchasing power of a rural population more than 600 million strong, Alibaba has a great deal to offer.
Great companies are born in challenging times. We believe the transformation of the Chinese economy from a focus on quantity to quality will lead to the formation of some of the world’s most remarkable enterprises. Alibaba hopes it will become one of them.

III. FUTURE DEVELOPMENTS: GLOBALIZATION, RURAL DEVELOPMENT AND BIG DATA CLOUD COMPUTING

Our key priorities for the next decade will be globalization, development of the rural economy and big data.
In terms of globalization, we aim to help small- to medium-sized businesses around the world expand beyond their borders by leveraging the power of e‑commerce, Internet financing, big data, and marketing and logistics platforms. We believe the experience of Alibaba Group in China can be applied globally, giving all SMEs the opportunity to participate and compete in a transparent and fair marketplace. We further believe that future economic globalization will allow consumers everywhere to access a truly global purchasing experience. We have been preparing for a considerable amount of time to make this vision a reality. It may take another one or two decades to complete the mission, but we won’t quit until we live up to our true mission “to make it easy to do business anywhere.”
China has a rural population of more than 600 million, and the business infrastructure in China’s rural areas is poor. However, with the growing popularity of mobile phones, tremendous changes have taken place in these areas. Taobao Marketplace and Tmall, in particular, link farmers directly with urban life. We are now renovating rural infrastructure by leveraging mobile Internet technology, big data, logistics and Internet financing. We do this not only because of the tremendous market potential, but also to close the digital divide, promote information equity and help alleviate poverty through economic opportunity. We are witnessing great changes in China’s countryside, and we encourage our shareholders to visit China’s rural areas to see these changes for themselves. What we are doing today may become a development model for many developing countries in the future. At this historic time, Alibaba Group must embrace change, invest in change and drive change.
Over the past six years, Alibaba Group has made a significant strategic investment in cloud computing and big data services. We believe that mankind is departing the IT era and entering a new era of DT (data technology). In the society of tomorrow, data will be the most important means of production, innovation and social development. People and data will be interwoven. We must continue to invest in the development of data technology. Alibaba is fundamentally a data-driven company. We firmly believe that we will see substantial returns from the investments we have made in data and related technologies over the past six years and will continue to make in years to come. Still in its infancy, we are working to make data and cloud computing the foundation for an inclusive economy. The future potential is massive.

ALIBABA’S CHALLENGE

Alibaba has challenges, but what concerns us may be different from what some may think, and we never shy away from talking about competition or our competitors. Over the past 16 years, we’ve never been short of competitors, nor have we benefited from any form of protection. We’ve blazed our own trail through fierce market competition. We have learned to survive while maintaining our ideals and values. It hasn’t been easy.
We have never been afraid of confronting new challenges. We excel over our competition by engaging in effective strategic planning and flawless execution.
Alibaba seeks to initiate a business revolution. Our future is the infrastructure of commerce. We are in the business of enabling sales transactions — this means we never compete with the businesses on our platforms. Our so-called competitors are also businesses that we want to support and help scale. In other words, it is not appropriate and an oversimplification to view companies that are engaged in e‑commerce as competitors to the Alibaba Group. Comparing us to other e‑commerce companies is not an apples-to-apples comparison. In our case, our relationship with merchants on our platform is more like apples and the apple tree.
Our biggest challenge is not our competition, but our ability to grasp the future and manage ourselves. With our ambitious vision and unique ecosystem, we need professional talents from different fields, a unique culture and an organization that can adapt to future developments. Our colossal business ecosystem and intertwined structure will require not just more corporate managers, but leaders, innovators and trailblazers. This is a tremendous challenge for a 16-year-old company with a workforce with an average age of only 29. There is almost no reference for us when we develop our talents, corporate culture, management model, and the relationship between our business units and government departments. As a young company, we are committed to a mighty challenge, one that’s unprecedented and beyond the imagination. But this is a golden opportunity. We have told ourselves over the past 16 years: If not now, when? If not us, who?
This is the first letter I have published since the IPO on my thoughts about Alibaba’s development strategy to our investors. Thank you again for investing in us and being part of the development of a future business ecosystem. We are grateful for the trust you have placed in us and what we will accomplish in the future.

JACK MA

Executive Chairman
Alibaba Group Holding Limited


http://ar.alibabagroup.com/2015/letter.html


http://ar.alibabagroup.com/2015/index.html

Charlie Munger: Investment advice

  1. While carrying out any investment assessment, first calculate risk.
  2. Make decisions on your own and be self-determining. After listing risks, you make decisions based on involved risks. Whatever you decide, you should be be self-determining regarding your decisions and actions.
  3. Plan to encompass a few imminent, possible complications.
  4. Being humble and admitting where you are deficient the first step towards perception. Committing mistakes is human, and admitting your mistakes is part of being humble.
  5. In order to reduce errors and mistakes, investigate thoroughly. Accepting mistakes is good but nothing is as good as avoiding mistakes.
  6. While making any investment capital is assigned, allocating capital and assets intelligently is a must.
  7. Oppose the normal inclination to do something and have patience.
  8. In appropriate situations, be determined and confident.
  9. Accept change. Change is a common phenomenon of any business and investment so recognize, accept, and acknowledge it instead of fighting it tooth and nail.
  10. Pay attention. When you lack attention and concentration, you've taken your first step towards failure.

http://www.valuewalk.com/charlie-munger-page/

Charlie Munger: Quotes


“All intelligent investing is value investing - acquiring more than you are paying for. You must value the business in order to value the stock.”
“The best thing a human being can do is to help another human being know more.”
“Acquire worldly wisdom and adjust your behavior accordingly. If you are new, behavior gives you a little temporary unpopularity with your peer group then to hell with them.”
“In my whole life, I have known no wise people (over a broad subject matter area) who did not read all the time - none, zero.”
“Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. Then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available because of prudence and patience in the past.”
“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. Just as animals flourish in niches, people who specialize in some narrow niche can do very well.”
“The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you are paying for. Move only when you have an advantage.”
“Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company's owners are slim at best.”
“It is not given to human beings to have such talent that they can just know everything about everything all the time. However, it is given to human beings who work hard at it. Who look and sift the world for a mispriced bet - that they can occasionally find one.”
“In addition, the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don't. It is just that simple.”
“Mimicking the herd invites regression to the mean.”
“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”
“Acknowledging what you do not know is the dawning of wisdom.”
“Above all, never fool yourself, and remember that you are the easiest person to fool.”
“Determine value apart from price; progress apart from activity; wealth apart from size.”
“Recognize reality even when you do not like it - especially when you don't like it.”
“Remember that reputation and integrity are your most valuable assets - and can be lost in a heartbeat.”
“I think records of accomplishment are very important. If you start early trying to have a perfect one in some simple thing like honesty, you are well on your way to success in this world.”
“We try more to profit from always remembering the obvious than from grasping the esoteric.”
“Intelligent people make decisions based on opportunity costs.”
“If all you succeed in doing in life is getting rich by buying little pieces of paper, it is a failed life. Life is more than being shrewd in wealth accumulation.”
“Someone will always be getting richer faster than you. This is not a tragedy.”
“Over the long term, it's hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you are not going to make much different than a six percent return - even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you will end up with one hell of a result.”
“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. Nevertheless, there are also cases where you have to recognize that you have no wisdom to add - and that your best course is to trust some expert.”
“The safest way to try to get what you want is to try to deserve what you want. It is such a simple idea. It is the golden rule. You want to deliver to the world what you would buy if you were on the other end.”
“I am not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I have reached that state.”
“Thinking that what is good for you is good for the wider civilization, and rationalizing foolish or evil conduct, based on your subconscious tendency to serve yourself, is a terrible way to think.”
“If you do not allow for self-serving bias in the conduct of others, you are, again, a fool.”
“Avoid working directly under somebody you do not admire and don't want to be like.”
“Intense interest in any subject is indispensable if you are really going to excel in it.”
“Never, ever, think about something else when you should be thinking about the power of incentives.”
“Fixable but unfixed bad performance is bad character and tends to create more of it, causing more damage to the excuse giver with each tolerated instance.”
“Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail.”
“In my whole life, I have known no wise people who did not read all the time-none, zero. You would be amazed at how much Warren reads-and at how much I read. My children laugh at me, they think I’m a book with a couple of legs sticking out.”

Charlie Munger's investments as Chairman of Daily Journal Corporation

Charlie Munger: Daily Journal Corporation

Charlie Munger is best known for his career as Vice-Chairman of Berkshire Hathaway Corporation and for being Warren Buffett’s right hand man. He is also chairman of the Daily Journal Corporation and has been instrumental in the Journal’s growth over the past six years.

The Daily Journal is a publisher specializing in legal text. The Daily Journal provides news of interest to members of the legal profession, specializes in public notice advertising, publishing state-mandated notices of death, fictitious business names, and sells software used to administer court cases. Charlie Munger started his working life as a lawyer, so the Daily Journal is a natural fit for him.

The Daily Journal was a strong business up until the financial crisis. Return on equity averaged 25% to 30% per annum; cash conversion was 70% per annum on average, and book value doubled between 2005 and 2008. However, since 2010 revenue growth has slowed to around 2.6% per annum and net income has fallen by 75%. EBITDA has more than halved.

Luckily, during the first quarter of 2009, Charlie Munger used $15.5 million of the Daily Journal’s cash to purchase a number of securities for the company. At first, neither Charlie Munger nor the Journal disclosed these positions, (although with both Munger and Rick Gurin working at the Journal, these positions we certain to value orientated and low-risk). This post from The Value Investors Club blog post, written only a few months after Munger started buying shows the secrecy surround the transactions:

During the first quarter of 2009, Charlie Munger, Chairman of Daily Journal Corp. (DJCO), made a significant redeployment of the company’s excess cash into an investment in common equities. Based on circumstantial evidence, we believe (but cannot be 100% certain since the Company has not disclosed what its invested in) that Munger purchased shares of Wells Fargo & Co (NYSE:WFC) and/or possibly U.S. Bancorp (NYSE:USB) at their recent early-March lows.”

“As such, DJCO now contains a hidden asset that may not be fully reflected in its current share price.”

“Based on circumstantial evidence, it appears possible that Munger plunked $15.5mm of DJCO cash to buy WFC (or USB or both). If this speculation on DJCO's equity purchase(s) is correct, then that $15.5 million investment which rose to $24.7mm at the end of March would now be up to $33-42 million at today's prices for USB/WFC. Thus in summary, DJCO looks cheap at a market cap of $64.5 million...we believe there is good value in DJCO based on the strength of Munger's legendary capital allocation skills.” -- Value Investors Club July 2009.

Charlie Munger started buying securities with the Journal’s cash for two reasons. Firstly, value:

“We bought Wells Fargo & Co (NYSE:WFC) stock when it was at $8, and I don’t think we will have another opportunity like that.” --Charlie Munger Daily Journal 2015 Meeting [FULL NOTES]
Secondly, the Journal’s board believed that jumping into stocks was the safest move during the financial crisis:

“The board recognized that this decision would be contrary to the conventional (but questionable) notion that the least risky way to preserve corporate capital for the long-term benefit of stockholders is to invest it in government bonds at interest rates approximating zero,” Source.

From a starting point of just under $16 million, the Daily Journal’s portfolio had grown to $135.3 million as of 31 December 2014. The portfolio’s holding were revealed for the first time during 2014, and they are typical Buffett/Munger style investments. Four main companies account for the bulk of the portfolio; Wells Fargo (by far the largest position around 70% of portfolio), Bank of America, U.S. Bancorp and Korean steel producer Posco.

“Posco is the most efficient steel company in the world. It had a pretty close to a local monopoly position in its country for a long time. It is very hard to avoid being commoditized in the modern world. In the places like The The Dow Chemical Company (NYSE:DOW) Company (NYSE:DOW) with complex chemical process, with 1000 PhDs, it is still hard to not be commoditized. Posco was able to do so.” -- Charlie Munger Daily Journal 2015 Meeting [FULL NOTES]

And Charlie Munger’s investments have put a rocket under the Daily Journal’s book value growth. Here’s the Journal’s book value per share from year-end 2008 to year-end 2014.

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CAGR
Book Value Per Share $9.69 $11.31 $14.85 $19.66 $38.23 $43.94 $46.99 $63.17 $82.09 $98.77 29.43%
Data from Morningstar


http://www.valuewalk.com/charlie-munger-page/

Charlie Munger: Investment Philosophy

Charlie Munger Resource Page


Charlie Munger, value investor, lawyer, philanthropist, Vice-Chairman of Berkshire Hathaway Corporationand Warren Buffett’s right-hand man. He is also chairman of the Daily Journal Corporation and a director of Costco Wholesale Corporation.

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.” — Charlie Munger



Charlie Munger: Investment partnership

Charlie Munger moved back to Omaha during 1959 and was soon introduced to Warren Buffett. The two immediately became friends. The two friends began speaking for hours every week discussing potential investment ideas and eventually in 1962, Buffett convinced Munger to quit his law job and start his own investment partnership.

“Warren talked me into leaving the law business, and that was a very significant influence on me. I was already thinking about becoming a full-time investor, and Warren told me I was far better suited to that. He was right. I would probably have done it myself, but he pushed me to it. I have to say, it isn’t an easy thing to work very hard for many years to build up a significant career, as I had done, and then to destroy that career on purpose. That would have been a lot harder to do if not for Warren’s influence on me.

It wasn’t a mistake. It worked out remarkably well for both of us and for a lot of other people…” --Charlie Munger The Wall Street Journal September 2014.

Charlie Munger’s investment partnership opened for business during 1962 and immediately started to outperform. Over its life, from 1962 to 1975, the partnership returned an average of 24.3% per annum for partners, compared to the DJIA, which returned 6.4% over the same period.

Charlie Munger quit the money management business during 1978 and moved to join forces with Buffett full-time, by becoming Berkshire Hathaway Inc.’s vice chairman.



Charlie Munger: Investment philosophy

Charlie Munger had no such attachment to Benjamin Graham, or his cigar butt style of investing.

“I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren -- who discovered him at such a young age and then went to work for him -- Ben Graham’s insights changed his whole life, and he spent much of his early years worshiping the master at close range. But I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.

I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks was a snare and a delusion, and it would never work with the kinds of sums of money we have. You can’t do it with billions of dollars or even many millions of dollars. But he was a very good writer and a very good teacher and a brilliant man, one of the only intellectuals -- probably the only intellectual -- in the investing business at the time.” -- Charlie Munger The Wall Street Journal September 2014.

Rather than seeking out deep value, Munger looked for quality and during 1965 he convinced Warren Buffett to adopt the same style.

Indeed, that year he encouraged Buffett to make one of his more famous bolt-on acquisitions for Berkshire; See's Candies.

See’s was a legendary West Coast manufacturer and retailer of boxed chocolates, then annually earning about $4 million pre-tax while utilizing only $8 million of net tangible assets. Alongside the tangible asset balance, See’s had one huge asset that did not appear on its balance sheet: a broad and durable competitive advantage that gave it significant pricing power:

“…The family controlling See’s wanted $30 million for the business, and Charlie rightly said it was worth that much. But I didn’t want to pay more than $25 million and wasn’t all that enthusiastic even at that figure. (A price that was three times net tangible assets made me gulp.) My misguided caution could have scuttled a terrific purchase. But, luckily, the sellers decided to take our $25 million bid. To date, See’s has earned $1.9 billion pre-tax, with its growth having required added investment of only $40 million. See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits. (Envision rabbits breeding.) Additionally, through watching See’s in action, I gained a business education about the value of powerful brands that opened my eyes to many other profitable investments.”– Warren Buffett Berkshire 2014 letter.

At first, Buffett was reluctant to pay more than book value because he was schooled in value investing. However, Munger was adamant that he do the deal.

As it turns out the deal has been wildly successful, producing more than $1bn in pretax earnings since, a return of more than 4,000%.

Even though Munger was influencing Buffett’s investment decision early on, he continued to manage his own partnership until the late 70s. His style at the time was to seek out arbitrage opportunities and look for cigar butts.

“Munger bought cigar butts, did arbitrage, even acquired small businesses...he said to Ed Anderson, “I just like the great businesses.” He told Anderson to write up companies like Allergan, the contact-lens-solution maker. Anderson misunderstood and wrote a Grahamian report emphasizing the company’s balance sheet. Munger dressed him down for it; he wanted to hear about the intangible qualities of Allergan: the strength of its management, the durability of its brand, what it would take for someone else to compete with it.

Munger had invested in a Caterpillar tractor dealership and saw how it gobbled up money, which sat in the yard in the form of slow-selling tractors...Munger wanted to own a business that did not require continual investment, and spat out more cash than it consumed...Munger was always asking people, “What’s the best business you’ve ever heard of?”

He wanted to get really rich, really fast. He and Roy Tolles made bets on whose portfolio would be up more than one hundred percent in a year. And he was willing to borrow money to make money, whereas Buffett had never borrowed a significant sum in his life…

Munger did enormous trades [with borrowed money] like British Columbia Power, which was selling at around $19 and being taken over by the Canadian government at a little more than $22. Munger put not just his whole partnership, but all the money he had, and all that he could borrow into an arbitrage on this single stock—but only because there was almost no chance that this deal would fall apart.” -- The Snowball: Warren Buffett and the Business of Life.

In the late 1990’s/early 2000’s Charlie Munger’s quality over value slant started to really shine through in both his and Warren’s writings. For example, in Charlie’s speech “A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business.” given in 1995 he stated that:

“We've really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses.

Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.

So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.

How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.”

Then during 2003, Warren Buffett made the following statement regarding Coca-Cola, See's Candies, and Buffalo News at the 2003 Berkshire Hathaway meeting:

“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very very few businesses like this. Coke has high returns on capital, but incremental capital doesn't earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns. Most of our businesses generate lots of money, but can't generate high returns on incremental capital -- for example, See's and Buffalo News. We look for them [areas to wisely reinvest capital], but they don't exist.

So, what we do is take money and move it around into other businesses. The newspaper business earned great returns but not on incremental capital. But the people in the industry only knew how to reinvest it [so they squandered a lot of capital]. But our structure allows us to take excess capital and invest it elsewhere, wherever it makes the most sense. It's an enormous advantage.”

This mentality had a dramatic effect on Berkshire Hathaway’s performance over the years. All you need to do is to look at Buffett’s acquisition of See’s Candies in the late 1960’s, to realize that without Charlie Munger’s quality over value influence on Buffett, Berkshire wouldn’t have become the American corporate giant it is today.




http://www.valuewalk.com/charlie-munger-page/


Lessons from Charlie Munger-XIX

Mar 20, 2013



In the previous article, we discussed how investors often make wrong investing decisions due to misguided influence from authority figures. Today we shall discuss yet another human tendency that often leads us into unproductive behaviour.

Twaddle tendency

All creatures survive in groups. And the one factor that connects creatures of a species is communication. It goes without saying then that communication has been one of the most critical tools in the evolution and survival of all species. Broadly, communication facilitates sharing of information about food, attracting a mate, signaling danger and so on. 

One of the things that differentiate human beings from other animals is our ability to think. The relatively larger size of our cerebral cortex is the reason for our creativity, language and logical deduction. As such, we have a highly advanced and complex language at our disposal.

But do we always make the most rational and productive use of words? The answer seems to be no. And this is where the 'twaddle tendency' fits in. An online dictionary defines 'twaddle' as silly, trivial or pretentious talk or writing. Being a social animal, man often indulges in petty small talks and chatter. No wonder the celebrity rumour and gossip pages are often the most widely viewed amongst all other news and editorial content!

Twaddle or nonsense talks are not such a bad thing by themselves. They only become a nuisance when they come in the way of some serious work that is in progress. And this is what we need to keep a check on. Charlie Munger relates an interesting experiment on honeybees which can be used as an analogy to show how the twaddle tendency can lead to unproductive results. For those not very well-read in biology, honeybees have a peculiar dance language that they use to indicate to their fellow mates where the food is. After returning to the honey comb with pollen or nectar, the worker bee performs a dance with particular movements. Through this, it communicates to the other bees both the distance and the location of the food. The other worker bees then follow the directions suggested and set out to gather pollen and nectar.

A certain scientist was curious to know how the honeybees would respond if the nectar was placed in an unusual position. So he placed the nectar in a straight-up position at a significant height. As you would have guessed, no nectar exists in such a position in a natural setting. So, this baffles the honeybee. It does not have a genetic program that is capable of communicating this new position. 

According to you, what should the honeybee ideally do in such a situation? It should just go back to the hive and pick a quiet corner, shouldn't it? But the honeybee does not do that. Instead, it comes back and attempts a dance. But the dance turns out to be incoherent. Just like twaddle! 

Can this behavioural tendency of the honeybee also apply to human beings? In our next article of this series, we will analyse the twaddle tendency in human beings, particularly in the context of the stock markets and the economy. We will also discuss ways that could help investors to filter away all the useless twaddle. 


https://www.equitymaster.com/detail.asp?date=03/20/2013&story=3&title=Lessons-from-Charlie-Munger-XIX

Lessons from Charlie Munger-XVIII

Mar 14, 2013




In the previous article, we discussed how humans have a natural tendency to submissively follow authority and how in some cases it can have tragic consequences. Today, we shall discuss this psychological tendency in the context of stock markets and how investors can wean themselves off this thinking error.


Authority-Misinfluence tendency in stock markets

Uncertainty and risk have a big influence on how independently people take their decisions. The greater the risk and uncertainty, the greater is the tendency to seek guidance and conformation from an authority figure. This makes the stock market a place that is incurably afflicted by the authority-misinfluence tendency. 

Just spare a moment and ponder about how exactly you decide when to buy or sell a stock. Do you invest based on 'hot tips' shared by 'influential' friends? Do you avidly track the portfolio of successful investors/ fund managers and try to mimic them? Do you invest based on the advice given by stock experts who appear on television? Do you blindly follow the advice of your broker or any other advisor? 

If your answer is a 'yes' to any one of these, then here are some more questions. What makes you follow these experts? Do you ever question or challenge their opinions? Do you trust them simply because they are in a position of authority? Is it convenient for you to follow them blindly so that you can escape the blame in case things go wrong? 
If you honestly reflect over these questions you will see that your decisions are seldom your own. In fact, it is not just small investors who fall prey to the wrong influence of authority. Even experts do, a lot of times.

You will recall that just prior to the stock market crash of 2008 most analysts had given a thumbs-up to an unreasonably expensive big ticket IPO of a famous corporate house. The IPO was oversubscribed a whopping 73 times! And then, not very surprisingly, the stock tanked after listing. In fact, it's been over five years since the stock listed and it is still down nearly 68% from its listing day closing price. This is what happens when one indiscriminately gives in to follow-the-leader tendency.

Of course, we are by no means suggesting that you should switch yourself off from all external help. This would be a stupid thing to do. Listening to views and opinions from experts is quite valuable. But there is difference between listening to experts with discretion and blindly following them. It is important that you exercise your own independent judgment to the opinions of others. 


'Mr Market' is there to serve you, not to guide you 

In an abstract sense, 'Mr Market' (as referred to the stock market by value investing genius Benjamin Graham) is a representation of an authority figure. People pay excessive attention to where the markets are going. But you must remember that 'Mr Market' is a fickle leader and often deviates away from the rational path. 

The greatest investors in the world are those who do not give in to the moods of 'Mr Market'. In fact, in his Letter to Shareholders in 1987, legendary investorWarren Buffett put down some very important lessons that he had learned from his Columbia Business School professor. Ben Graham had taught him to look at the market quotations as if they were coming from an emotionally troubled fellow called 'Mr Market'. The poor guy often goes through periods of euphoria followed by periods of gloom. But the good thing is that 'Mr Market' does not mind if you ignore him. His only job is to come up with a new quote every day, every few seconds.

So if you learn to command this peculiar gentleman, you can take advantage when he is gloomy and rack up great businesses at depressed prices. On the other hand, when 'Mr Market' is euphoric, you can simply ignore him. The most important thing to remember is to let the 'Mr Market' serve you, not to influence your investing decisions. 



https://www.equitymaster.com/detail.asp?date=03/14/2013&story=5&title=Lessons-from-Charlie-Munger-XVIII