An Investing Principles Checklist from Poor Charlie
From Poor Charlie's Almanack:
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An Investing Principles Checklist
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Risk – All investment evaluations should begin by measuring risk, especially reputational
- Avoid big mistakes; shun permanent capital loss-
Independence – “Only in fairy tales are emperors told they are naked”
- Objectivity and rationality require independence of thought
Preparation – “The only way to win is to work, work, work, work, and hope to have a few insights”
- If you want to get smart, the question you have to keep asking is “why, why, why?”
Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom
- Above all, never fool yourself, and remember that you are the easiest person to fool-
“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.” - I have never understood this!!!!!
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Analytic rigor – Use of the scientific method and effective checklists minimizes errors and omissions
- Be a business analyst, not a market, macroeconomic, or security analyst-
Allocation – Proper allocation of capital is an investor’s number one job
- Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily
Patience – Resist the natural human bias to act
- “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
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Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction
- Be fearful when others are greedy, and greedy when others are fearful-
Change – Live with change and accept unremovable complexity
- Recognize reality even when you don’t like it – especially when you don’t like it-
Focus – Keep things simple and remember what you set out to do
- Face your big troubles; don’t sweep them under the rug-
In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.
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