Charlie Munger said that reading was the main reason for his success in life.

As a generalist, he reads about all kinds of topics.

I’m sure a List of Charlie Munger’s Book Recommendations is among the top 1% of lists you can get.

So here it is👇🏼

“How do you know?”
You never know!

In investing, you have to act on incomplete knowledge.

I came across a great article by @honam lately.

In it, he discusses his decision-making under the condition of an unknowable future.

I think the learnings are worth sharing 👇🏼

“The truth is, in the beginning, we never knew how things would turn out.” - Ho Nam

When you analyze a company, you (hopefully) come up with an investment thesis at the end.

But it’s nothing more than that - a thesis.
The future is yet unwritten thus unknown.

Sequoia’s Mike Moritz has beautifully described an initial investment as a “giant step into the unknown.”

That’s why your work isn’t done after the decision to buy.
Investing is a journey.

You have to reevaluate your investments constantly.

Ho Nam’s article offers four questions (we’ll discuss three) that can help you do that and decide whether you should hold, sell, or double down.

Although they’re primarily VC (Venture Capital) focused, I believe we can all learn something from them.

1. Does the company generate cash?

Especially in the VC world, but also with bigger and more established companies, it’s not a given companies make money.

There’s a tendency to overpay for vision and underpay for value at the moment.

But Cash-Flow is a form of safety.

Li Lu is a well-known Superinvestor who has achieved a compounded annual return of about 30% since 1998.

He is also known for managing the money of his good friend Charlie Munger.

Today, he turns 56 years old, and on this occasion, here is some of his timeless wisdom👇🏼

1. Why Value Investing Works

The market isn’t created for value investors.

It is built in a way that increases the urge to speculate.

That’s why businesses are so often misprized in the short term.

Value investors can benefit from this circumstance.

2. Understand Who You Are

You’ll be more interested in some industries/topics than in others.

And in investing, you can choose in what industries you’ll look for opportunities.

Investors should use this advantage and be sure about their circle of competence.

3. Be a Journalist

Being an investor is a lot like being a research journalist.

You have to dig into the company on a level that journalists do when they research their stories.

You also need to clearly articulate your thesis and research and bring it to paper.

4. Find the Truth

A journalist also has to find the truth before he publishes a story.

Same goes for an investor. It could be fatal if he makes a decision before he knows “the truth” about a company.

Thus, he has to avoid all sorts of biases and misleading influences.

There are only a handful of investors with high-teen performance over decades.

Walter Schloss is one of them.

He achieved a 20% annualized return over 47 years.

$10,000 would've turned into over $50 million.

Here's how he did that👇🏼

1. Little Background

Walter Schloss learned investing from Benjamin Graham, just like Buffett.

Buffett also mentioned Schloss in many letters and in his article on the Superinvestors of Graham and Doddsville.

Accordingly, Schloss followed a value investing philosophy.

However, like every great investor, he also did things differently than Buffett or other peers.

Today, we will analyze the most critical points and the things that differentiate Schloss.

In the end, there’ll also be an Investing Checklist by him and his son.

2. Correctness of Judgement

More important than the predictions of analysts or experts is your own judgment.

And it’s your responsibility to make sure it’s correct.

Most people fail to test their judgment and decisions regularly.

How you approach upcoming news on your investments is critical for a correct judgment.

Being skeptical is much more helpful than trying to fit news into your thesis.

You shouldn’t need to convince yourself of an investment.

It should be convincing because of the facts.

Peter Cundill might be the least known Superinvestor of the last century.

The Cundill Value Fund he managed achieved a little over 15% compounded return over 33 years.

This is more than 100x on your initial investment.

This is his Investment Philosophy👇🏼

1. A Whole Lot Of Patience

Cundill’s most important trait is patience.

Great ideas often come early to you.

Reality is complex and things take time to play out.

The worst mistakes are made when investors decide to sell these great ideas because they fear opportunity costs.

2. Always Change A Winning Game

Never change a running system, but always change the game.

Nothing wins forever.

Create an investing framework and stick with it but change where you apply it.

Things that outperformed will eventually stop doing so and the other way around.

3. Be International

Great opportunities exist in all kinds of markets.

As discussed above, changing where you play can be important to stay on top.

One way to change your playing field is to expand into different countries.

4. Great Poets Borrow

Decades ago, Cundill already emphasized on the importance of what many call “cloning” today.

To find investment ideas, looking at what other successful investors own can be helpful.

Ideally, you build a network of investors you gather ideas from.

7 Books that Changed My Life:

- Winning
- Atomic Habits
- The Behavior Gap
- The Millionaire Mind
- How to Become a Rainmaker
- The Subtle Art of Not Giving a F*ck
- Mindset: The New Psychology of Success

What books changed your life?

At McKinsey, we charged $400k+ per presentation.

Here’s the simple 7-step framework we used (steal it for free)🧵:

McKinsey is paid to solve complex problems.

They created a process that helps find solutions:

The Hypothesis-Driven Framework.

Let’s dive in.👇

Start by Gathering Facts.

Most people skip this step. That's a huge mistake.

Take a few hours to understand the problem. Talk to a couple of experts.

Ask:
• What are the causes?
• How often does it happen?
• How solutions have you tried?

Now you're ready to start solving.

Generate an Initial Hypothesis.

Problems remain unsolved when people look for a solution without direction.

Ask yourself:

“Based on initial facts, what do I believe is causing this?”

That’s your Initial Hypothesis.

Build an Issue Tree

Solving one big problem is hard. Solving 20 small problems is easy.

Break the issue down into its smallest components:

1: Profits are down
1.1: Revenue is down
1.1.1: 30% of our clients moved to our cheap product
1:1.1.1: That product was recently upgraded

Thread: Central Pivot Range (CPR)

CPR is another popular tool. Three lines are plotted on the chart when we plot CPR.

The three lines are: CPR, TC and BC.

Let’s understand the calculation.

You may recall that I explained the calculation of Pivot levels in an earlier thread. CPR stands for Central Pivot Range. It is always a center line of the three lines that gets plotted in the chart.

CPR is a Pivot price. Pivot is average of HLC as explained in the prev thread.

We also discussed about Mid-range of the session. Mid-range is average of High and low price of the session.

The mid-range of the bar is known as BC in the CPR calculation. BC stands for Bottom central pivot.

Pivot level captures the relationship of the closing price to the range of the session.

Pivot price above mid-price = bullish pivot
Pivot price below mid-price = bearish pivot

So, CPR line is Pivot and BC line is Mid-range.

What is the difference between both?
Mid-range is average of High and Low.

Pivot is average of High, Low and Close.
What will make the difference between the two?

Close.