Magnitude Beats Frequency
As an investor, success can be defined by how much you make when you are right, less how much you lose when you are wrong. This means how often you are right or wrong does not matter very much in the end. Magnitude beats frequency.
Everything Is Cyclical
I think it’s essential to remember that just about everything is cyclical. There’s little I’m certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don’t grow to the sky. Few things go to zero. And there’s little that’s as dangerous for investor health as insistence on extrapolating today’s events into the future.
Proving Them Wrong
Pointless
The more the universe seems comprehensible, the more it also seems pointless.
Being Prepared
Our 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. If you took our top 15 decisions out, we’d have a pretty average record.
Diversification
If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into the seventh one instead of putting more money into your first one is going to be a terrible mistake. Very few people have gotten rich on their seventh best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I would probably have half of it in what I like best.
Mental Toughness
Golf requires a mental toughness to be great. I see it in my friends who are way better than me. They have the ability to hit a horrible shot and completely forget it and just focus on the next shot as if nothing happened. I cannot do that as hard as I try. That’s why they are single handicappers and I am not.
Meltdowns teach you something important. It teaches you that you are not infallible and that you can fail spectacularly and get up the next day and continue to be the best player in the game. That leads to the mental toughness that is required to play the game of golf at the highest level.