Instead of focusing on artificial target returns, focus on making better and smarter decisions.

For 80/20 Investors, the entire process of making investment decisions is linked to risk management and avoidance of loss.

Notes: 1) if you have to think about it then don’t do it

Charlie Munger, who made the expression “no-brainer” popular among investors, acknowledged that Berkshire Hathaway’s enormous fortunes were based on “waiting for the no-brainers.”

Notes: 1) if you need to use a spreadsheet then it’s not a good enough deal

As long as you don’t buy single securities of complex businesses, you don’t need to do any classic valuation works with Excel spreadsheets or intricate computer software. The assumptions required in creating these spreadsheets or valuation software tempt you to use unrealistic future cash flow or interest rate predictions. According to Munger: “People calculate too much and think too little.”

Follow and study companies that you come across due to your work or life passions, and that you admire for their products and services.

Follow and study companies that you come across due to your work or life passions, and that you admire for their products and services. They should have certain key economic characteristics, such as high profitability, simple business models, capable management and growth potential.

Notes: 1) how to develop a circle of competence

Large positions – large impact. Ask yourself if you are willing to commit most of your saved cash. If you can’t invest a substantial amount of money in one investment, because you feel uncomfortable and you have no confidence, you should not invest. But if you have identified a rare no-brainer opportunity, you have calculated your maximum downside, and done your homework, it is time to commit, and commit in force.

What should I buy and when should I buy? How much should I buy? These are the most common questions among individual and institutional investors. Regarding these questions, Charlie Munger has this to say: “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. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”

Most investors, whether private or professionals, follow this approach to investing. They have money and they want to invest it right away. Whether it is the right season is of less importance, because they feel confident to always find the right investment ideas whatever season it is.

Notes: 1) yes. you don’t have to invest.

why would a rational investor venture out in areas and industries he knows nothing about, and has no knowledge advantage whatsoever, just because a computer program tells him to?

Notes: 1) do i have some sort informational advantage?

The most logical area to look for opportunities is within your own work environment, your own business expertise, or within your own interests, in the area that constitutes your chosen circle of competence. In its purest form, the first and most logical investment that constitutes a no-brainer decision is to invest in yourself.

Notes: 1) always over invest in events and education

The above story is not to demonstrate how the juggernauts of business are lucky to get the best deals before anybody else, but to demonstrate their mindset and thought process as successful investors who understand their trade.

Your work environment, your own business, or even your personal hobbies should be the main source for your best investment opportunities.

If you cannot distinguish between a great investment opportunity and a mediocre one within your own business field, you might have trouble finding one somewhere else.

Imagine you’re the Godfather. Yes, the one from the movies, the one with the antique wooden desk in the dimly lit office which probably smells of tobacco. You’re just like Brando. You examine your paperwork with one lazy sweep of your hand. You don’t have meetings; you have audiences. If a financial market is in desperate need of your help (your money), you will grant it. But at your prices and on your terms — and to your benefit!

All Magic Categories:

1)  Your personal Circle of Competence

2)  Global market crises

3) Single country crises

4)   Individual industry crises or single asset class depression

5) Single business/company crises

1. Their aim is not to time markets, but to buy great assets at great prices — no-brainers. It is not their intention to buy at the lowest point and aim to sell at the top. That would defeat the purpose.

2. They have replenishing cash portfolios in a place where they can take the opportunity to buy more at better prices. They merely buy something great at even greater prices.

Notes: 1) having FCF from a biz or jobs gives you liquidity when no one else has it

Here you should appreciate the importance of having a functional cash management system in place your read about in Chapter 8, that distinguishes 80/20 Investors from other investors, especially the institutional ones. Mutual funds, hedge funds, and other institutional funds have to fight with redemptions in a panic and in a multi-year recession. It forces them to liquidate their positions even though their Fund Managers know for certain that these holdings will be profitable in the future.

Notes: 1) invest in index funds of OECD countries after collapsing

Index funds or a pool of the leading listed corporations should do the trick to participate in any recovery and return to normal economic circumstances.

But there it was, in 1999, you could buy crude oil for less than $20 a barrel. In 2008, oil reached its peak of about $140 per barrel. It’s the same story with gold. You could buy gold for under $300 in 1999, and it reached its peak in 2011 at $1,921 an ounce. These opportunities are very rare and actually easy to spot. I remember clearly when I asked veteran brokers in 1999 (I was a young banking apprentice then) whether it would be a good time to buy oil or gold. They scoffed at me, arguing these were dead assets. So if all the people you interview, especially professionals, dislike an asset class, start looking at and researching this particular asset class to prepare for potential no-brainer investments.

So if all the people you interview, especially professionals, dislike an asset class, start looking at and researching this particular asset class to prepare for potential no-brainer investments.

Notes: 1) you can only make momey when most of the money is wrong. You have to be contrarian but correct.

Already know what assets or particular investments you want to buy in advance. Through competence and preparedness, you will have more confidence buying your favorite assets when the time comes.

In a larger and prolonged economic crises, you can buy anything. The default positions are cheap, broadly diversified, index funds. Alternatively, choose the asset class that you personally prefer and have the strongest circle of competence

Notes: 1) buying index funds after major crashes

If you asked me what the worst emotion would be in investing, it would be impatience, not greed.

Where professionals are forced by policies and regulations, along with profit pressure and competitive forces, to invest at all times so as to create that aura of activity, retail investors feel urged on by peer pressure or the simple human urge to gamble.

Notes: 1) sit and wait

fund managers feel forced to buy and sell at any price, just to avoid deviation from their benchmarks. Their individual holdings sizes, as measured by the percentage invested in one single investment, reflect the weightings in their respective benchmarks. That means that one single holding will never have a dominant position over all other investment holdings in a fund. The argument is that the entire fund could be unstable and it doesn’t reflect the risk parameters that led customers to choose this particular fund in the first place. That also means that even if they could identify the next Facebook or Google, they could never invest more than a small percentage of total assets in this particular promising company.

They do everything, and I mean everything, to achieve stable as possible investment returns, even giving up clear investment opportunities. All institutional investors hate volatility. Tough luck — volatility is your partner in investing and business,

80/20 Investors don’t attempt to anticipate the future by trying to impose causalities where none exist